Random comments on China's new civil code

On March 15^th, the National People’s Congress passed the long-awaited General Rules of Civil Law (中华人民共和国民法总则) (GRCL), a collection of general principles that will come into effect on October 1, 2017. Interestingly, the GRCL will not replace the 1986 General Principles of Civil Law (民法通则) (GPCL) when they come into effect; for various reasons, the decision was made to have the GPCL continue in effect to the extent that their provisions do not conflict with GRCL provisions.[1]

The GRCL are accompanied by three documents explaining features of the text and certain amendments:

• Explanation
• NPC Law Committee's Report on the Results of the Deliberation of the Draft
• NPC Law Committee's Report on Suggestions for Revising the Revised Draft

What follows are some more or less random comments on particular features of the GRCL that struck me as I read through the text. They are not intended as a comprehensive evaluation.

1. Liability of legal persons

Art. 62 states that legal persons (for example, corporations) shall be liable for damages caused to others by the acts of their legal representative in carrying out his responsibilities. Of course the legal person should be liable in such a case, but why apparently limit it to the acts of the legal representative? Surely it should state that the legal person is liable for the acts of any employee in the course of work (assuming such acts give rise to a claim for damages, of course).

2. Characteristics of non-profit organizations

Art. 87 and Art. 95 state that non-profit organizations do not and may not distribute their profits to investors, founders, or members. One sees what they are getting at. But why stop there? It would be simpler just to say that non-profits may not distribute their profits to anyone. That’s what makes a non-profit a non-profit: not the fact that it has no profits (if its revenues exceed its costs, it has profits), but the fact that nobody is entitled to a distribution of those profits. They have to be plowed back into the work of the non-profit. Situations where the non-profit wants to donate to another organization or liquidate are dealt with in Art. 95; it makes more sense to specify the limited number of situations where profits may be distributed to someone than to specify a few types of people to whom profits may not be distributed.

3. Standard of compensation for takings

Art. 117 sets the standard for compensation for takings as “fair and reasonable” (公平合理). The point to note here is that this is understand as meaning something other than (and probably less than) fair market value. The GRCL could have specified this but elected not to, so it’s significant.

4. Conditions of validity for civil acts

Here’s where things get interesting. In Art. 143, one of the conditions for validity of a civil law act (民事法律行为) (for example, the making of a contract) is that it not “violate mandatory provisions of laws or administrative regulations” (不违反法律、行政法规的强制性规定) and that it not go against “public order or fine customs” (不违背公序良俗) (Art. 143).[2]

Let me take the second condition first. What does “public order or fine customs” mean? Both the term and the rule seem to have been taken from Art. 90 of the Japanese Civil Code. The term only started appearing with any frequency in legal documents in the last few years, and has been used in an official enactment of the National People’s Congress or its Standing Committee only once before, in an interpretation of the GPCL and the Marriage Law issued in 2014. No doubt it is intended as a catch-all term, similar to the “public policy” on grounds of which a common-law court can declare a contract invalid.

Interestingly, the GRCL take a different approach to validity than the GPCL, which list a number of grounds on which civil acts were invalid instead of listing the grounds for validity. Those grounds do not include any language about “public order or fine customs.” They do, however, include language about acts in violation of law (i.e., statute) (法律) or public interest. Note that “statute” here has a technical meaning in Chinese law: something passed by the NPC or its Standing Committee. A rule passed by a lower-level body—even the State Council – is not a statute (法律).

The GPCL also invalidate acts that use a lawful form to cover up an unlawful goal (以合法形式掩盖非法目的的). In this part of the GPCL (and in Art. 52(5) of the Contract Law, which duplicates the language), however, the scope of “law” in “unlawful” has been debated. “Unlawful” (非法) can plausibly be read to cover much more than formal statutes passed by the NPC or its Standing Committee.[3]

But this language has been dropped from the GRCL. Instead, all we are left with is the potentially very broad reach of “public order or fine customs” and the much narrower “mandatory provisions of laws or administrative regulations.”

This brings us to the first condition. Here, “laws” means (again) statutes: stuff passed by the NPC or its Standing Committee. It might well also include enactments of certain high-level sub-central people’s congresses.[4] “Administrative regulations” means enactments of the State Council (not just, for example, a ministry or commission under the State Council). This condition, therefore, is quite narrow. If a civil act violates a mandatory provision of a regulation passed by, say, the Beijing municipal government or the Ministry of Commerce, it’s still valid. In fact, it might be even narrower than that: the identical provision in the Contract Law has been interpreted to mean that contracts are invalid where they violate mandatory provisions of laws or administrative regulations respecting the validity of contracts (for example, requirements of government approval for validity), but not otherwise.

In short, the GRCL seem to make it impossible to argue that a contract or other civil law act is invalid because it contravenes some low-level rule unless that contravention can be called a violation of public order or fine customs. Indeed, the GRCL add even more confusion to the subject when they revisit it in Art. 153, which embodies the logical corollary of Art. 143 by stating that civil law acts are invalid when they (a) go against public order or fine morals or (b) violate mandatory provisions of laws or administrative regulations (in each case understood in a restrictive, technical sense as explained above). But Art. 153 adds a kicker to part (b) of the previous sentence: “except when said mandatory provisions do not result in invalidity of the civil law act.” Result: violations of mandatory provisions of laws or administrative regulations will result in invalidity except when it doesn’t.

5. Conditionality of civil law acts

Article 159 states that civil law acts may be made conditional on the occurrence of certain events. It adds that where a party, for its own benefit, improperly prevents a condition from occurring, it shall be deemed to have occurred, and where it improperly causes an event to occur, it shall be deemed not to have occurred.

One understands what they are getting at, of course, but as stated this rule is going to create problems. Consider, for example, a contract under which an employer promises to provide housing to the employee as long as the employee is employed. The employer is (subject to the provisions of employment law) able to cause the event of non-employment to occur; does this mean that it must continue to provide housing even after lawfully terminating the employee? Of course, one could respond that that’s why the addition term “improperly” has been put there. But that’s an awful lot of weight for a vague and non-technical term to bear, and I have no confidence that Chinese courts would pay any attention to it at all.[5]

6. Liability for damages inflicted in the course of lawful self-defense

Article 181 provides that a party shall not be liable for damages inflicted in the course of proper self-defense (正当防卫, which could perhaps include defense of others). If this means damages inflicted on the assailant, there is nothing to quarrel with here, although the premise that the self-defense was within appropriate bounds would seem to make liability a non-starter even without this provision. But as worded, it seems that if I am attacked and smash a shop window to grab a knife to defend myself, then as between me and the shopkeeper, the shopkeeper must bear the cost of the broken window.

7. Good Samaritan provision

Article 184 provides, somewhat startlingly, that those who attempt to aid others in emergency situations shall never be liable under any circumstances. If I see you coughing, assume you are choking, and attempt a tracheotomy with a butter knife despite a complete lack of medical training, your next of kin cannot sue me. The legislative history makes it clear that this is in fact the desired result. The original version of this article presented to the NPC provided that the Good Samaritan could be liable for gross negligence, but some delegates objected that this would be too discouraging. (Bear in mind that this provision comes in the wake of a number of incidents widely reported in China over the last several years of egregious bystander indifference to suffering or of those who were aided suing those who aided them.) As a result, the provision was amended to state that where the aided party could prove that they had suffered serious damages as a result of the aider’s gross negligence, the aider should bear “appropriate” liability.[6] (Note that the burden of proof would have been on the aided party even without this amendment.)

But even this not enough for some delegates, and so the language specifying liability for aiders was removed altogether.[7] In other words, it is very clear that the NPC does not want aiders to be liable even for palpably gross negligence.

8. Liability for defaming heroes and martyrs

Apparently discussions at the NPC actually resulted in the addition of a new article in the GRCL providing for liability for infringement on the name, image, reputation, or dignity of “heroes, martyrs, etc.” (英雄烈士等). This comes in the wake of two court decisions imposing liability (rather trivial, to be sure: an apology in one case and a fine of 1 yuan in another) on persons who questioned the truth of some stories about Communist Party heroes, and fits in well with growing official denunciations of “historical nihilism” (i.e., questioning the official version of history).

But the provision itself is an outlier relative to the rest of the GRCL in its vagueness and slipshod drafting – although the very vagueness may be deliberate message about its essentially political and therefore untouchable nature. Most obviously, how are “heroes,” “martyrs,” and especially “etc.” to be defined? Second, how will damages be measured? (We are talking about dead people here.) Third, who will have standing to sue?

In the two cases mentioned above, it was reported that “the family” sued, and in a previous case of defamation of the dead, the daughter of the allegedly defamed person was granted standing. Thus, it is possible that standing will be limited to those who would have standing in any ordinary defamation-of-the-dead case. But in that case, it is hard to see why this provision was necessary or how it changes existing law.

[UPDATE 3/20/2017: Existing law on this point is set forth in a Supreme People's Court interpretation of 2001, which states that "close relatives" (近亲属) of a deceased person have standing to bring suit for emotional damages where the defendant has, by means of insult, slander, disparagement, vilification, or other methods that go against social public benefit or social public virtue, infringed on the deceased's name,  image, reputation, or dignity (以侮辱、诽谤、贬损、丑化或者违反社会公共利益、社会公德的其他方式，侵害死者姓名、肖像、名誉、荣誉). Thus, the new provision in the GRCL can be seen either as a codification of this rule, but with respect to heroes and martyrs only, or as simply a political statement with no legal consequences. Since the NPC does not seem to object to the wide scope of the 2001 interpretation, the codification options would seem to be to codify all of it or none of it. Thus, I opt for the political explanation.]

9. Abolition of certain types of prescriptive acquisition

Article 196 says that if you have rights in real estate (registered or not) or registered title to movable property, it cannot be acquired by prescription – ever. The statute of limitations does not apply. Statutes of limitations are called rules of repose: if you fail for a sufficiently long period to vindicate your rights, the law won’t recognize them any more. This law was intended to help rural residents who leave the farm for the cities, find it difficult to keep tabs of their interests in land, and may end up losing them. That’s understandable. But surely after the passage of some period of time – twenty years, forty years? – it’s time to say that courts aren’t going to recognize ancient and hard-to-prove claims that nobody bothered about for decades. Otherwise you just generate a new set of injustices.

10. Non-waivability of statute of limitations

Another interesting wrinkle in the rule on statute of limitations is that of Article 197, which says that the period, calculation, suspension, and re-starting of the limitations period is a matter of law and cannot be the subject of negotiations between the parties. Similarly, the parties may not consent in advance to waive the benefit of the limitations period.

This has some important practical implications. In more than one case of which I have personal knowledge, defendants sued in the United States on China-related matters have attempted to have the suit dismissed on forum non conveniens grounds, and as part of their motion have promised that if sued in China, they will not raise a statute of limitations defense. Article 197 suggests that such a promise may be worthless; that the limitations period is a matter of subject-matter jurisdiction for the courts, not personal jurisdiction, and as such something that the parties simply lack the power to give the court if it does not already have it.

Notes

[1] See 关于《中华人民共和国民法总则（草案）》的说明, March 8, 2017. This might also be the place to note that calling the GRCL the “General Rules” to distinguish them from the “General Principles” is a bit unsatisfactory as a matter of translation, since the word that is different in the Chinese is the term for “general”, not the term for “principles” and “rules”. But the name of each statute essentially means “general rules”, so the main point is just to use different words to distinguish them for the English-speaking reader.

[2] Article 8 also states that civil activities (民事活动) may not violate law (法律, i.e., statutes) or go against “public order or fine customs.”

[3] I will discuss this question more fully in an upcoming blog post on a recent interesting Supreme People’s Court case involving a Variable Interest Entity.

[4] The details are too complex to go into here.

[5] As I have discussed in an article on the Peter Humphrey/Yu Yingzeng prosecution on charges of unlawful acquisition of citizens’ personal information, neither the prosecution nor the court spent any time showing that the defendants’ acquisition of information was unlawful. The presence of the word in the statute appears to have been entirely superfluous.

[6] 第十二届全国人民代表大会法律委员会关于《中华人民共和国民法总则（草案）》审议结果的报告, March 12, 2017, Sec. 10.

[7] 第十二届全国人民代表大会法律委员会关于《中华人民共和国民法总则（草案修改稿）》修改意见的报告, March 14, 2017, Sec. 5.