China Laws and Regulations Update in July 2020

1.Instructions (Given on an Experimental Basis) by the Supreme Court on Application of Law and Case Searches

Promulgated by the Supreme People’s Court

Promulgation date: 27 July 2020

Implementation date: 1 August 2020

Document number: F.[2020] 185

Case searches help judges make correct judgement. If a dispute arises from application of law or no clear or uniform decision-making rules exist, judges need to study the application of law more carefully and decide more prudently. To standardize the exercise of the decision making right and cause uniform rules on application of law to be implemented, the Instructions states that in one of the following events, case searches are required: 1. to propose to submit to the qualified (presiding) judge meeting or trial committee for deliberation; 2. in the absence of clear or uniform decision making rules; 3. the president or chairman requires case searches within their power to monitor and administer trials; 4. other event in which case searches are necessary to standardize the case search report mechanism. (Source: Website of the Supreme Court)

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An Analysis of the Effect of Liability Limitation Clauses (Part I)

(By Guo Yaojie)Businesses may encounter contract risks in the course of regular business operation. Increasingly more businesses have become aware of the importance of risk prevention and started to put focus on risk control and prevention. Liability limitation clauses are often seen in contracts. What do liability limitation clauses mean? How do they work? What about the validity of liability limitation clauses in contracts? To find answers to these questions, read this article.

1.General liability limitation clauses

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China Laws and Regulations Update in June 2020

1.The Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region

Promulgated by the Standing Committee of the National People’s Congress

Promulgation date: 30 June 2020

Implementation date: 1 July 2020

Document number: No.49 President Order

The Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region consists of six chapters, i.e. General Principles, Duties, Bodies, Offenses and Penalties, Jurisdiction, Applicable Law and Procedure, Office for Safeguarding National Security of the Central People’s Government in the Hong Kong Special Administrative Region and Supplementary Provisions, including altogether 66 articles. This is an comprehensive law containing articles of substantive, procedural and organization laws.

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Strategies for Protecting Intellectual Property Rights in Online Education Platform Software

(By Gao Shaoyi, Li Rong)Online education is becoming increasingly more important to educational and training industries due to the impact of Covid-19. Online education platforms provide various educational services including course video recording, live online teaching, personalized teaching and instructing, test question searching, work assessment, etc., which to some extent reduce the effect of suspension of on-campus classes on teachers and students. There are many online education platform developers and a lot of online education platform software products launched. Some software brands are copied from others. Therefore, for online education platform software developers, giving a protection for intellectual property rights in their online education platforms in all respects is the only way to gain more core competitive advantages and succeed in today’s market.

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China Laws and Regulations Update in May 2020

1.The Civil Codeof the People’s Republic of China

Promulgated by the National People’s Congress

Promulgation date: 28 May 2020

Implementation date: 1 January 2021

Document number: No.45 President Order

The Civil Code of the People’s Republic of China consists of 1260 items in seven chapters, i.e. general principles, rights in property, contracts, personality rights, marriage and family, inheritance, infringement and attached sections.

The lawmaking committee of the Standing Committee of the National People’s Congress started to work on the Civil Code in March 2015. The general principles of the civil law were reviewed and passed on the 5th meeting of the 12th National People’s Congress in March 2017. In December 2019 the Standing Committee of the National People’s Congress reviewed the draft of the Civil Code incorporating the general principles of the civil law and drafts of the chapters of the amended Civil Code and decided to submit the draft of the Civil Code to the 3rd meeting of the 13th National People’s Congress for review.

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How to Calculate the Time Limit on Liability-Exempt Delay in Construction Work of Builder Units Due to Convid-19

(By Nie Shengnan)Just before the Chinese Spring Festival 2020, Convid-19 broke out across our country. The government has taken a series of measures to control the spread of the disease, including spring festival holiday extension, increases in the number of inspectors, closure of highways, delay of work and business resumption, quarantine at fixed places and times, etc. These measures are bound to affect the term of work on construction projects. How to calculate the time when the majeure force incident appears and disappears is an issue that the parties involved are very concerned about and is very likely to cause disputes when builder units claim exemption of liabilities based on force majeure clauses.

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China Laws and Regulations Update in April 2020

1.Opinions (I) on Legally and Appropriately Dealing with Civil Cases Arising from the Covid-19 Pandemic

Promulgated by the Supreme People’s Court

Document No. F.F.[2020] 12

Promulgation date: 20 April 2020                            

Opinions is comprised of ten items relating to use of support services provided by legal authorities, accurate application of force majeure rules, legally and appropriately dealing with contract, labor and other cases, exemplary damages, suspension of time limit on legal actions and extension of the period of legal proceedings, aid and support from legal authorities and companies. In general, the Opinions are given mainly from four aspects below.

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Has Luckin Inc. Violated Chinese Criminal Law?

(By Zhao Sen)There is a widespread concern about the news that Luckin Coffee, a famous Chinese company listed on the US stock market underwent an over 80% slump in share price because of the allegation of financial information falsification. According to documents provided by Luckin Coffee to SEC, Tencent Securities reported, CEO of Luckin Coffee and some of employees who reported to him did improper activities, including false deals since the second quarter of 2019. According to the US Securities Law 1934 and the Sarbanes-Oxley Act, in addition to a large sum of fines, a person who has committed securities related fraud may face an imprisonment of up to 25 years. Is falsification by Luckin Coffee a crime in Chinese law? This is a good question.

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China Laws and Regulations Update in March 2020

1.Information Security Technology and Personal Information Safety Rules

Published by the State Standardization Administration

Document No. GB/T 35273-2020

Publication date: 6 March 2020

Implementation date: 1 October 2020

Rules deals with personal information collection, storage and use matters and states that personal information owners have the rights to access, correct, remove, revoke the license, cancel the account and obtain copies of personal information. There are three major changes this time from the 2017 version.

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New Changes in Export Control Rules of China

(By Wang Haichuan)The new Export Control Law of China (the “Draft”) was published for public comments on December 28, 2019. This is the first law on export control in China. Export control means measures taken to prohibit or restrict the export of certain items such as nuclear, biological products or weapons in order to fulfill international obligations such as non-proliferation obligation, national security and development interests, etc. Currently, there are administrative regulations of export control on chemicals, general nuclear items, nuclear items used for multi-purpose, missiles, military products, biological products (the “Current Regulations”). Compared with the Current Regulations, the Draft makes no change in the current regulatory mechanism and allocation of responsibility and duties, appropriately improves the system and measures and fills blanks in laws. This article will focus on the changes in export control and their possible impact on companies doing business in China.

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China Laws and Regulations Update in February 2020

1.Foreigner Permanent Residence Regulations of the People’s Republic of China (Draft Version)

Published by the Ministry of Justice

Publication date: 27 February 2020

Draft Version clearly states that the foreign permanent resident’s identity card is the identity document of foreign permanent residents in China. Foreign permanent residents with this document can do and none of relevant organizations and their staff can prevent them from doing certain activities. Draft Version sets out the eligibility for foreigners applying for permanent residence in China. For instance, foreigners who have made globally recognized achievements in economics, science and technology, education, culture, health, sports and other areas can apply for permanent residence application directly. Foreigners who have made significant contribution to China’s economic and social development and obtained recommendation of relevant government authority or the provincial, autonomous region or municipality government may apply for permanent residence. Foreigners who are needed for the national economic and social development such as urgently needed talents introduced into state key industries and areas and recommended by relevant regulatory authority may apply for permanent residence application. Draft Version provides that the foreigner wanting to obtain permanent residence in China should file a permanent residence application to the exit and entry administration affiliated with the public security department of the place where the applicant lives. The applicant should ensure information contained in the application form is true, submit photos of their passport or other international travel document or of specific standards and other documents, attend an interview and give their human identification information such as fingerprint. Foreign permanent residents cannot stay in China for less than three months every year. According to Draft Version, foreign permanent residents can use the entry and exit passages only for Chinese citizens, buy commercial houses in China by relevant rules for personal use or to live in, pay and use public housing funds by public housing fund management rules. Foreigners with permanent residence in the specific age group or their accompanying children who have not reached adulthood can receive compulsory education in China and only need to pay mandatory fees. (Source: Website of the Ministry of Justice)

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What Should I Do with My Contract in the Cononavirus Epidemic?

(By Wang Haichuan)Facing the coronavirus epidemic, some people are going on the extra 10-days’ holiday, while others are worrying about their contracts. For example, the Government of Shanghai requires local enterprises not resume their work before 24:00 of February 9th. Such requirement may result in a delay or failure of contract performance. This brings about a few questions. Who should be responsible for the contract breach? Can the contract be extended or terminated? What about allocation of damages arising from the contract termination.
I.The epidemic is a force majeure event
People usually think of such events as force majeure. Is the coronavirus epidemic a force majeure event? Chinese courts used to consider similar events as force majeure. The SARS epidemic in 2003 is very similar to the coronavirus epidemic this time. The Supreme Court issued the notice regarding contract disputes arising from SARS (“SARS cases”) in 2003. Accordingly, contract disputes arising from the SARS epidemic or government acts to prevent and control the SARS epidemic should be resolved according to force majeure related provisions. Actually, there are contract disputes decided by Chinese courts as caused by force majeure events.
According to the Contract Law of the People’s Republic of China, if a contract cannot be fulfilled due to a force majeure event, the liabilities may be exempted in whole or in part depending on the impact of the force majeure event. The “exemption of liabilities” means no longer needing to pay damages and be responsible for the breach of the contract, but does not mean exempting the obligation to perform the contract. For example, in case of delayed performance of a contract, the defaulting party shall pay the non-defaulting party 0.5% of the contract price as penalty for each day of delay. When the performance is delayed due to force majeure, the delaying party is entitled to refuse to pay the penalty pursuant to force majeure related provisions. After the disappearance of a force majeure event, the other party is entitled to require the delaying party to continue to perform the contract.
You may feel less worried after reading the above paragraph because anyhow you are not liable for the contract breach. However, force majeure related provisions do not apply in all cases where a force majeure event occurs. For example, the effect of the epidemic on a sales contract may be different from that on a tourism contract. For instance, a tourism contract for a trip to Wuhan is completely unable to be performed, while a computer sales contract between two Shanghai-based companies are not be affected at all. Therefore, the impact of force majeure events on the performance of contracts should be determined on a case-by-case basis by taking actual circumstances into consideration. In some SARS related cases, courts found that the SARS epidemic and restrictions imposed by the government due to the SARS epidemic only affected part of the business of the defaulting party in a way that was not serious enough to “directly” or “basically” cause the contract to be unable to be performed and therefore the force majeure event could not be a legal reason for the contract termination[L.S.2.M.K.Z.No.14 Tenancy Contract Case of Second Trial between Dalian Pengcheng Holiday Damu Co., Ltd. and Dalian Zhengdian Watches Co., Ltd.]. In summary, after the occurrence of force majeure events, factors such as the duration of the epidemic, the contents of the contract, the term of the contract and government orders should be taken into consideration to determine whether relevant force majeure provisions can be applied.
II. What should we do after a force majeure event occurs?
The exemption of liabilities in the event of force majeure doesn’t mean that the contractual parties can wait and do nothing until the disappearance of the force majeure event. The parties should do the following things about their contract after the occurrence of a force majeure event.
1. To take active and appropriate measures to reduce the extent of the damage and the adverse effect on the performance of the contract. The party failing to take prompt action is liable for additional losses arising from such failure.
2. To obtain proof of the occurrence of the force majeure event. In some contracts the affected party may be required to provide the other party with proof of the force majeure event within a certain period of time. Therefore, the affected party should be active collecting proof of the force majeure event from government agencies or other third parties.
3. To deal with other contract related issues as soon as possible, especially modification or termination of the contract. In case of modification of the contract, the parties will continue to perform the contract some time later or at a reduced contract price. In the SARS epidemic some tenants had to stop doing business and asked for cuts in rent. Courts supported their claims in equitable fashion[(2004) H.2.Z.M.2.(M) Z.Z.No.354 House Lease Contract Case between Shanghai Pipe Entertainment Co., Ltd. and Shanghai New Huangpu (Group) Co., Ltd.]. In case of termination of the contract, neither party is liable for the termination if the purpose of the contract cannot be met because of the force majeure event.
4. Any party that wants to terminate the contract needs to collect evidence of losses arising from the contract performance. After the termination, the fulfilled part of the contract should be paid for, with the rest part of the contract price not needing to be paid. The cost of preparations made for the performance of the contract made are part of losses of the parties to the contract. Courts usually award damages in an equitable fashion. In some cases, each party pay 50% damages[cf. Government’s Abstract Administrative Act Resulting in Non-Performance of a Contract Can Be Considered as a Force Majeure Event, by Li Hu, People’s Judicature, 20th issue 2009, pp.83-86; and the written judgement for the (2016) SPC.M.Z.No.220 contract case of second trial between Bai Junying and the Government of Tumd Zuoqi].
5. To send a written notice to the other party to the contract. Issuing such written notice will give you the following advantages. First, giving a clarification of measures taken to mitigate the adverse effect of the force majeure event could reduce the risk of being held liable (for further losses). Second, there are different approaches to addressing issues arising from an force majeure event (such as change or termination of the contract). Sending a written notice can give you an advantage of making a good choice for yourself. A notice usually contains:
(1) details of the force majeure event and its effect;
(2) measures taken or to be taken by you to reduce losses after its occurrence;
(3) your proposed plan to deal with other contract related issues arising therefrom (such as change or termination);
(4) your losses arising from performance of the contract and loss distribution plan (if the contract is terminated)
6. To actively negotiate with the other party and prepare for possible action. The two parties must reach a mutual agreement for the change of contract. If the parties fail to reach an agreement, an action may be brought to change the contract. When a force majeure event occurs, the possibility of contract disputes is higher. Therefore, on one hand, the parties involved should discuss and negotiate with each other actively to resolve the problems; on the other hand, they must prepare for possible litigation.
III. Suggestions
We suggest the parties affected by the epidemic of the coronavirus:
1.evaluate the impact of the epidemic on the contract performance to see whether force majeure related provisions are applicable;
2. take reasonable measures to reduce losses after the occurrence of the force majeure event;
3. obtain proof of the occurrence of force majeure event;
4. decide how to deal with issues related to the contract (change or termination);
5. collecting evidence of losses arising from the performance of the contract;
6. sending a written notice to the other party as soon as possible to fix related facts and express your opinions;
7. discuss with each other actively and prepare for possible litigation.

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China Laws and Regulations Update in November 2019

1.Interpretation of Several Issues Connected with Application of Laws to Hearing Cases of Smuggling and Illegally Doing Business in and Using Dopes

Promulgated by the Supreme People’s Court

Document number: L.I. [2019] No.16

Promulgation date: 18 November 2019

Implementation date: 1 January 2020                            

The Interpretation states that government officials and personnel of organizations that exercise their powers to administer anti-doping rules will be convicted of crimes of position abuse and dereliction if they abuse or fail to fulfill duties of their position with powers to administer anti-doping rules, causing serious doping offenses and serious damage to the nation’s reputation or very bad social influence. (Source: Website of the Supreme People’s Court)

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Profit Distribution Claims Could Be Successful Without a Related Shareholder Resolution – Jin v. Shanghai JL Company Earnings Distribution Case

By Bai Lituan)The Regulations of Several Issues Concerning Application of the Company Law of the People’s Republic of China (IV) (Legal Interpretation IV of the Company Law) taken into action by the Supreme People’s Court on 1 September 2017 provides that if shareholders claim that the company should distribute its profits without providing a related distribution plan or shareholder resolution, the court should reject the claim unless shareholder rights are abused, causing the company unable to distribute its profits and causing damage to other shareholders. In other words, in principle, courts should reject profit distribution claims brought by shareholders without a related shareholder resolution, unless in exceptional circumstances.

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China Laws and Regulations Update in October 2019

1.Encryption Law of the People’s Republic of China

Promulgated by the Standing Committee of the National People’s Congress

Promulgation date: 26 October 2019

Implementation date: 1 January 2020                            

The Encryption Law states that main rules on commercial encryption including standard, inspection and certification, market access, use requirement, import and export, e-administration and e-certification service and in-process and post regulation rules on commercial encryption. (Source: Website of the National People’s Congress)

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