SPC Issues Judicial Interpretation on Several Issues Concerning the Application of the General Part of the PRC Civil Code

On 24 February 2022, the Supreme People's Court (“SPC”) of the People’s Republic of China (“PRC”) promulgated the Interpretation on Several Issues Concerning the Application of the General Part of the PRC Civil Code (the “Interpretation”). The Interpretation entered into effect on 1 March 2022, and consists of 9 parts and 39 Articles in total. The Interpretation contains interpretations and explanations of the SPC on Book One, i.e. General Part, of the PRC Civil Code, which is the first combined codification of the civil law in the PRC, and which had entered into effect on 1 January 2021 (the “Civil Code”).

The 9 parts of the Interpretation are: General Provisions, Capacity for Enjoying Civil-law Rights and Capacity for Performing Civil Juristic Acts, Guardianship, Declaration of a Missing Person and Declaration of Death, Civil Juristic Acts, Agency, Civil Liability, Limitation of Action and Supplementary Provisions.

Below we highlight some key aspects of the Interpretation:

1. Clarification on the application of the law for civil relationships

Article 1 of the Interpretation clarifies the application of the law for civil relationships as follows:

a) Application of Book One, General Part, of the Civil Code in relation to other books of the Civil Code

- If a civil relationship is provided for in Books Two to Seven of the Civil Code, the provisions in Books Two to Seven of the Civil Code shall be applied directly.

- If a civil relationship is not provided for in Books Two to Seven of the Civil Code, the provisions in Book One, General Part, of the Civil Code shall apply.

E.g. when dealing with contract related matters, it should first be checked if there are respective special provisions in Book Three, Contracts, of the Civil Code. If yes, these provisions in Book Three, Contracts, of the Civil Code apply. If no, respective provisions in Book One, General Part, of the Civil Code, e.g. the provisions on civil juristic acts or agency, apply.

b) Application of relevant provisions of the Civil Code in relation to other civil laws

- If a civil relationship is provided for in both the Civil Code and other civil laws, and in case the other civil laws provide for more detailed provisions compared to the respective provisions of the Civil Code, such other civil laws shall apply. Where the Civil Code stipulates that any other law shall apply, such other law applies.

E.g., according to Article 188 of the Civil Code, the limitation of action for a person to apply to a People's Court for the protection of civil rights shall be 3 years, unless otherwise provided by law. According to Article 27 of the PRC Law on Mediation and Arbitration of Labor Disputes, the statutory time limit for raising claims before the competent labor arbitration committee for liabilities for breach of an employment contract is 1 year starting from the date when the party knew or should have known the infringement of its rights. I.e., in such case, the 1-year limitation of action period provided for in the PRC Law on Mediation and Arbitration of Labor Disputes is more special and applies.

c) Application of basic principles of the Civil Code regarding civil relationships

- If a civil relationship is not provided for in the Civil Code or in any other civil laws, the basic principles as set forth in the Civil Code may be followed.

2. Clarifications on what constitutes “fraud”

The Interpretation provides for clarifications on what constitutes “fraud”. “Fraud” is referred to in relevant stipulations of the Civil Code as follows: According to Article 148 of the Civil Code, where a civil juristic act is performed by a party against his or her true will as a result of fraud by another party, the defrauded party shall have the right to request a People’s Court or an arbitral institution to revoke the act. Article 149 of the Civil Code further states that where a civil juristic act is performed by a party against his or her true will as a result of fraud by a third party, the defrauded party shall have the right to request a People's Court or an arbitral institution to revoke the act if the other party knows or should have known about the fraud.

Article 21 of the Interpretation now clarifies that where a person deliberately provides false information, or a person with an obligation to inform deliberately withholds any true information, and, thus, causes the other party to make an expression of intent based on a wrong understanding, the People’s Court may determine the case as a case of fraud.

Compared to Article 68 of the former Opinions of the Supreme People's Court on Several Issues concerning the Implementation of the PRC General Principles of the Civil Law (Trial Implementation), which have been abolished as of 1 January 2021, Article 21 of the Interpretation adds that the withholding of information, generally, only constitutes fraud, if the party who withheld relevant information had an obligation to disclose such information.

Such amendment complies with the general legal principle that omissions are regularly only legally relevant when there was an obligation to act.

3. Burden of proof for apparent agency

With regard to “apparent agency”, Article 172 of the Civil Code stipulates that where an actor performs an act of agency without the right of agency, or beyond his or her power of agency, or after his or her power of agency has terminated, such act shall nonetheless be valid if the counterparty had reason to believe that the actor had sufficient power of agency.

Article 28 of the Interpretation clarifies that a People’s Court may determine that the counterparty as referred to under Article 172 of the Civil Code had reasons to believe that the person performing the act had sufficient power of agency, if both of the following conditions are met: (i) objectively, there was the appearance of sufficient power of agency; and (ii) subjectively, the counterparty was in good faith, i.e. the counterparty did not know that the person performing the act had no sufficient power of agency and the counterparty was not at fault.

Regarding the burden of proof, the Interpretation clarifies that the counterparty shall bear the burden of proof for item (i) above, i.e. that there was the appearance of sufficient power of agency, while the principal shall bear the burden of proof for item (ii) above, i.e. that the counterparty was not in good faith or at fault.

Compared to Article 13 of the Circular of the Supreme People's Court on Issuing Guiding Opinions on Several Issues Concerning Trial of Cases on Disputes over Civil and Commercial Contracts in the Current Situation, effective as of 7 July 2009 (“Fa Fa [2009] No. 40”), the burden of proof for the good faith of the counterparty has been shifted from the counterparty to the principal. This increases the protection of the counterparty.

4. Legal consequences of non-established civil juristic act

Article 134 of the Civil Code stipulates that a civil juristic act may be established through unanimous declaration of intent of two or more parties, or through the unilateral declaration of intent of one party. I.e. according to Article 134 of the Civil Code, the establishment of a civil juristic act is subject to the declaration of intent. A civil juristic act cannot be established, if, e.g., the parties failed to make a unanimous declaration of intent.

Article 23 of the Interpretation clarifies that where a civil juristic act has not been established and a party to the act requests the return of property, payment of compensation at a discounted price or compensation for loss, Article 157 of the Civil Code shall apply. Article 157 of the Civil Code stipulates that after a civil juristic act is void, revoked, or determined as having no binding effect, the property obtained by the actor as a result of the act shall be restituted. If restitution is impossible or unnecessary, indemnification shall be made at a discounted price. Further, the party at fault shall compensate the other party for any loss suffered as a result of the act. If both parties are at fault, they shall assume corresponding liabilities respectively, except as otherwise provided for by the law. I.e., according to Article 23 of the Interpretation, where a civil juristic act has not been duly established, a party to the act may request the return of property, the payment of compensation at a discounted price or compensation for loss.

The provision of Article 23 of the Interpretation is very similar to Article 32 of the Circular of the Supreme People's Court on Issuing the Summaries of the National Conference for the Work of Courts in the Trial of Civil and Commercial Cases, effective as of 8 November 2019 (“Fa [2019] No. 254”), but the scope of Article 23 of the Interpretation has been extended from the mere non-establishment of contracts to the non-establishment of civil juristic acts.

5. Clarifications on justifiable defense and acts of rescue

a) Justifiable defense

According to Article 181 of the Civil Code, where any harm is caused by self-defense, no civil liability shall arise therefrom. However, where self-defense exceeds the limits of necessity and causes undue harm, the person in self-defense shall assume appropriate civil liability.

Article 30 of the Interpretation clarifies that an act against a person committing an ongoing unlawful infringement in order to stop such infringement and to protect the interests of the State, social public interests, or the personal rights or property rights or other lawful rights and interests of the acting person or another person against such ongoing unlawful infringement shall be determined as an act of justifiable defense under Article 181 of the Civil Code.

The Interpretation further clarifies how to determine whether an act of justifiable defense exceeds the necessary limits. According to Article 31 of the Interpretation, for this, the People’s Court shall take the following into overall consideration: the nature, means, intensity and degree of the harm of the unlawful infringement as well as the timing, means, and intensity of the defense and the consequences of the harm caused thereby.

The same rules as above had basically already been set out in the Circular of the Supreme People's Court, the Supreme People's Procuratorate and the Ministry of Public Security on Issuing Guiding Opinions on the Application of the Justifiable Defense System in Accordance with the Law, effective as of 28 August 2020. However, in addition to the stipulations of such circular, the Interpretation also clarifies that if the person committing the infringement claims that the necessary limit was exceeded in an act of justifiable defense simply on the grounds that the method or intensity of the action taken in response to the unlawful infringement by the person acting out of justifiable defense would be inadequate, but without being able to prove that the defense taken has caused undue harm, the People’s Court shall not support such a claim.

b) Acts of rescue

Article 182 of the Civil Code stipulates that where any damage is caused by the necessity to avoid a danger in emergency situations, the person causing the danger shall assume civil liability. Where the danger arises from any natural cause, the person acting to avoid the danger shall not assume civil liability but may be required to make appropriate indemnification. Where the act of avoiding a danger in emergency situations is inappropriate or exceeds the limits of necessity and causes undue harm, the person acting to avoid the danger shall assume appropriate civil liability.

Article 32 of the Interpretation clarifies that where an emergency measure has to be taken by a person to protect the interests of the State, social public interests, or the personal rights, property rights or other lawful rights and interests of that person or another person from an immediate danger, the case shall be determined as a case of avoiding a danger in emergency situations according to Article 182 of the Civil Code.

Article 33 of the Interpretation further provides for clarification on whether an act of rescue was inappropriate, or the necessary limit was exceeded. In order to determine such question, the People’s Court shall take the following into overall consideration: the nature of the danger, the degree of urgency, the rights and interests to be protected by the measure and the consequences of the harm caused thereby. If it is found that the measure taken to avoid a danger in emergency situations was not inappropriate and the necessary limit was not exceeded, the People's Court shall determine that the person taking the measure is not liable. If it is found that the measure taken was inappropriate or the necessary limit was exceeded, the People’s Court shall determine that the person taking the measure shall bear corresponding liability to the extent of the undue harm caused based on factors including the degree of fault of the person, the causal efficacy of the measure taken in causing the undue harm, and whether the person is a beneficiary of the measure.

6. Limitation of Action

According to Article 188 of the Civil Code, the limitation of action for a person to apply to a People's Court for the protection of civil rights shall be 3 years, unless otherwise provided by law. Under PRC law, the limitation of action starts from the date on which the right holder knew or ought to be aware of that his or her rights have been infringed and who the obligor is. In the absence of such knowledge, there is a maximum limitation period of 20 (twenty) years from the date on which the claim arose.

According to Article 194 of the Civil Code, during the last 6 months of a limitation period, if a claim cannot be exercised due to the following obstacles, the limitation shall be suspended: (i) force majeure; (ii) persons of no capacity for civil conduct or persons of limited capacity for civil conduct have no legal agent, or the legal agent has died, lost the capacity for civil conduct or lost the authority for agency; (iii) after the succession begins, the successors or the estate administrators have not been determined; (iv) the right holder is controlled by the obligor or others; or (v) other obstacles which have caused the right holder to fail in raising claims. In case of a suspension, the limitation period shall expire 6 months from the date when the obstacle causing the suspension has been eliminated.

Further, according to Article 195 of the Civil Code, the limitation of action shall be discontinued if: (i) the right holder requests performance from the obligor (ii) the obligor agrees to fulfill its obligations; (iii) the right holder initiates court proceedings or applies for arbitration; or (iv) other circumstances equal to initiating court proceedings or arbitration. In case of a discontinuance, the calculation of the limitation period will re-start from scratch.

Article 35 of the Interpretation now clarifies that during the general 3-years’ statute of limitation period provided for in the first paragraph of Article 188 of the Civil Code, the provisions of the Civil Code relating to the suspension or discontinuance of the limitation period may be applied, but the provisions of the Civil Code relating to the extension of the limitation period shall not be applied. During the 20-year period provided for in the second paragraph of Article 188 of the Civil Code, the aforementioned provisions relating to the suspension or discontinuance of the limitation period shall not be applied.

This means that the above Articles 194 and 195 of the Civil Code apply for the calculation of the regular 3 years’ statute of limitation period, but they do not apply for the calculation of the maximum 20 years’ period. If the statute of limitation period started to run on 1 January 2021 and then on 1 March 2021, the right holder requested performance from the obligor, the calculation of the 3-years’ period re-starts from scratch. However, this is irrelevant for calculation of the maximum 20 years’ period, which still ends 20 years from the date on which the claim arose.

Further, Article 38 of the Interpretation provides that, where a limitation period was discontinued according to Article 195 of the Civil Code, if a cause for discontinuance as stated in Article 195 of the Civil Code arises again after the limitation period resumed running, a second discontinuance of the limitation period may apply. E.g., if in one and the same case, the right holder first requested performance and then, after the limitation period resumed running, initiates court proceedings, the limitation period may be discontinued and re-start from scratch twice.

Further, where the right holder makes a performance claim against an agent, custodian of the property, estate administrator or similar of the obligor, the relevant rules regarding the discontinuance of the limitation period under Article 195 of the Civil Code may apply. This clarifies that a respective performance claim does not necessarily need to be made against the obligor in person.

7. Conclusion

The Interpretation provides for detailed guidance on the implementation of the provisions set out in Book One, General Part, of the Civil Code. It further provides for clarifications on the application of Book One of the Civil Code in relation to other books of the Civil Code and other civil laws. The Interpretation mostly follows the rules and provisions contained in former judicial interpretations of the SPC, while making required updates, which are generally in line with recent civil and commercial practices. Thus, the Interpretation is of relevance and importance for dealing with all kinds of civil law matters. It can be expected that further interpretations for other books of the Civil Code will follow in due course.