31 May, 2017
Taking its first step to formulate the Code of Civil Law, China has recently promulgated the General Provisions of Civil Law (General Provisions), which set out certain key principles under Chinese civil law and replaced various aspects of the current General Rules of Civil Law. The General Provisions will be come into effect on 1 October 2017. In this bulletin, we summarise the key regulatory developments under the General Provisions.
Key developments under the General Provisions
Protection of personal information
Historically, Chinese law has not recognised a person's right to protect his or her personal information as a separate civil right; protection of personal information rights has been sporadic through standalone regulations. The General Provisions confirm, for the first time under Chinese civil law, that an individual's personal information is a separate civil right protected by law. Personal information may only be obtained and used in accordance with the law and information security of the collected information must be safeguarded. This development shows that China has recognised the importance of protecting personal information in this era of globalisation and the internet. It is consistent with the other recent regulatory developments including the Cyber Security Law which will take effect from 1 June this year.
Ultra vires acts of legal representatives
As a general rule under Chinese law, the acts of a company's legal representative within the scope of his or her responsibilities will bind the company. Historically, it has not been entirely clear whether ultra vires acts of legal representatives beyond the scope of their responsibilities would be binding. The General Provisions clarify that a company must assume the legal consequences of civil acts by a legal representative in its name; limitations as to the legal representative's scope of responsibilities in the company's articles of association or the highest authority of the company will not amount to a defence against a bona fide counterparty.
Statute of limitation for civil rights claims extended to three years
Currently, the statute of limitation for civil right claims (such as contract claims, tort claims, etc.) is two years unless specifically provided by law. The General Provisions extend such statute of limitation to three years. This development is aimed at providing more time for relevant parties to pursue civil rights claims. It is however not clear whether such an extension will retrospectively apply to and revive claims which have been time-barred under the existing 2-year limitation period regime but would not be so when the new law takes effect.
Deadlines to revoke a civil act clarified
Chinese law provides that a civil act (such as a commercial contract) could be revoked if a party has made such act due to significant misunderstanding or if the act itself is apparently unfair to a party. The General Provisions have clarified various deadlines by which a party may revoke a civil act (such as revoking a commercial contract) including:
- where it is on the ground of significant misunderstanding, within three months from when the relevant party becomes aware, or ought to have become aware, of the misunderstanding;
- where the civil act was taken under threat, within one year from when the threat ceased; and
- in any event, within five years from the date such civil act is taken.
Practical tips
In light of the various developments under the General Provisions, we encourage companies to carefully review and digest the regulatory developments and monitor any future updates following the promulgation of the General Provisions. Among other things, we suggest that companies should:
- be more cautious about the use or transfer of personal data to ensure it is handled in a legitimate and safe manner;
- more closely monitor the acts of legal representatives through robust financial controls and chop control protocols to minimise the possibility of ultra vires acts by legal representatives; and
- review existing contract templates in light of the extended limitation period and consider any claims or potential claims in the pipeline to evaluate whether any of them would benefit from the extended limitation period or would otherwise be subject to a longer liability exposure.
For further information, please contact:
Nanda Lau, Partner, Herbert Smith Freehills
nanda.lau@hsf.com
