August 28, 2018
Standard terms, which are very common in drawing up contracts, can easily lead to contract disputes. Principles of International Commercial Contracts (hereinafter referred to as PICC) made general provision for standard terms, which could provide reference for the legislation of different countries, and is applicable to judiciary and arbitration. For instance, the definition of Article 2.1.19 in PICC to standard terms is: standard terms are provisions prepared in advance for general and repeated use by one party and are actually used without negotiation with the other party.
Article 2.1.20 stipulates circumstances for surprising terms, namely, invalidity of standard terms: no term contained in standard terms which is of such a character that the other party could not reasonably have expected it, is effective unless it has been expressly accepted by that party.
Contract Law of People’s Republic of China (hereinafter referred to as Contract Law) also provides detailed rules and restrictions on the standard terms. If these rules are violated, the legal consequences of the standard terms are revocable or invalid. Therefore, in the case of Sino-foreign economic and trade activities, the party providing the contract text shall pay full attention to the content of the standard terms.
Standard terms, which are clauses prepared in advance for repeated use by one party, are not negotiated with the other party when the contract is concluded.
Section 1 of Article 39 in Contract Law: where standard terms are adopted in concluding a contract, the party supplying the standard terms shall define the rights and obligations between the parties abiding by the principle of fairness, and shall inform the other party to note the exclusion or restriction of its liabilities in a reasonable way, and shall explain the standard terms upon request by the other party.
Article 40: When standard terms are under the circumstances stipulated in Articles 52 and 53 of this Law, or the party which supplies the standard terms exempts itself from its liabilities, increases the liabilities of the other party, and deprives the material rights of the other party, the terms shall be invalid.
Interpretation II on Issues of the Contract Law Application from Supreme People’s Court (hereinafter referred to as Interpretation II of Contract Law) specify the detailed liability of the party who provides the standard terms and the consequences of violating the legal obligations. These regulations also become important reference in judicial practice.
The party who provide standard terms, shall use special signs such as characters, symbols and fonts which are enough to attract the attention of the other party to those contents which eliminate or limit its responsibility when contract is concluded. And shall, with the request of the other party, specify the terms of the format. Under all the above circumstances, it should be deemed conforming to “taking reasonable method” asserted in Article 39 in the Contract Law by the People’s Court.
The party who provides standard terms violates the clause of Section 1 of Article 39 in Contract Law concerning the obligations of presentation and explanation, resulting in the other party failed to notice the terms that exempt or limit its liability, the claim that the other party apply to revoke the standard terms shall be supported by the People’s Court in law.
The party who provides the standard terms violates the clause of Section 1 of Article 39 in Contract Law and has one of the circumstances specified in Article 40 of the Contract Law, the standard terms shall be deemed invalid by the People’s Court .
Here is a related case which was bulletined by China’s Supreme Court.
The case was judged by the Intermediate People’s Court of Guangzhou, China. Article 10 of Installation Application of Global System for Mobile Communications (GSM) Contract, which was provided by a telecommunications company, stipulated that “after being suspended for three months, the company has the right to transfer the user’s number to someone else without refund any of the network charges.” The court held that this was a form of standard terms only emphasizing their own rights but ignoring the interests of user’s. Thus, this term has damaged the plaintiff’s property rights and interests and violated the fairness principle. Therefore, this standard terms shall be invalid. The telecommunications company shall bear civil liability for its transferring of the plaintiff’s telephone number.
Therefore, as a general rule, when guiding the client to conclude the contract, even though the client does not provide the standard form of contract, for some of clause which may conclude the implication of “exempt its responsibilities, increase the liabilities of the other party and exclude the other party’s main rights”, the clients are suggested to remind the other party in text by means of enlarged font, bold, italic or underline. For major contracts, I would also advice my client to request the other party to autograph contents such as “The terms of the contract have been carefully read and understood without ambiguity. The above contract content is my real intention”, so as to guarantee the validity of the contract.