National People's Congress Adopts China's First Civil Code

China

On 28 May 2020, the long-awaited Civil Code of the People's Republic of China (“PRC Civil Code”), which is the People’s Republic of China’s (“PRC”) first combined codification of the civil law ever, has been adopted by the 13th National People's Congress (“NPC”). The PRC Civil Code will enter into effect on 1 January 2021. The complete wording of the PRC Civil Code has been officially published via Xinhua News on 1 June 2020.

1. Codification History of the PRC Civil Code

Since the foundation of the PRC in 1949, there have in total already been 4 previous attempts by the PRC government to provide for a combined codification of the PRC’s civil law, i.e. in 1954, 1962, 1979 and 2001, respectively. However, all of these previous attempts have failed due to various reasons.

In October 2014, the PRC government again decided to provide for a combined codification of the PRC’s civil law and the drafting process started from March 2015. In 2017, the General Rules of the PRC Civil Law had been adopted and entered into effect. The successful implementation of the General Rules of the PRC Civil Law was deemed as a key step for the final formulation of the PRC Civil Code. From August 2018 on, six individual draft chapters have been made available to the public and have been reviewed in different sessions of the NPC Standing Committee. In December 2019, a complete draft of the PRC Civil Code has finally been published for comments of the public. Such draft of the PRC Civil Code was under a long public review and consultation process and around one million comments had been collected. From December 2019 to May 2020 before the PRC’s NPC and the Chinese Political Consultative Conference sessions of 2020, more than 100 partly substantial changes were further made to the PRC Civil Code draft for discussions. The final version of the PRC Civil Code has been adopted by the NPC on 28 May 2020.

2. Concurrent Abolishment of Numerous Existing Laws

Concurrently with the entering into effect of the PRC Civil Code, according to Article 1260 of the PRC Civil Code, which is its last provision, the PRC Marriage Law first effective as of 1 January 1981, the PRC Inheritance Law first effective as of 1 October 1985, the General Principles of the PRC Civil Law first effective as of 1 January 1987, the PRC Adoption Law first effective as of 1 April 1992, the PRC Security Law first effective as of 1 October 1995, the PRC Contract Law first effective as of 1 October 1999, the PRC Property Law first effective as of 1 October 2007, the PRC Tort Liability Law first effective as of 1 July 2010 and the General Rules of the PRC Civil Law first effective as of 1 October 2017 will be abolished. It is further stated by the NPC that the Interpretations of the Standing Committee of the National People's Congress on Paragraph 1 of Article 99 of the General Principles of the PRC Civil Law and Article 22 of the PRC Marriage Law will also cease to be effective concurrently.

3. Key Aspects on the PRC Civil Code

The PRC Civil Code consists of 7 parts, i.e. General Rules, Property Rights, Contracts, Personality Rights, Marriage and Family, Right of Inheritance and Tort Liability with a total of 1260 Articles.

Below we highlight some key aspects of the new PRC Civil Code:

a) Chapter I, General Rules

Chapter I of the PRC Civil Code, i.e. General Rules, to a large extent maintains the structure and content of the current General Rules of the PRC Civil Law effective since 1 October 2017. It includes 204 provisions. The provision on guardianship of unattended wards has been materially amended and in 3 provisions time limits have been changed from “month(s)” to “day(s)”. 17 provisions have been slightly amended and 183 provisions of the current General Rules of the PRC Civil Law have been kept unchanged.

Accordingly, in Chapter I mainly minor changes to the wording have been made for reasons of consistency with other chapters.

A novelty is that, according to Article 34 of the PRC Civil Code, if in an emergency situation, e.g. the COVID-19 epidemic, a guardian is unable to fulfil its guardianship responsibilities and if the ward is unattended, the residents’ committee or village committee at the place of the ward's domicile or other relevant organizations shall temporarily provide the ward with necessary daily life care.

The PRC Civil Code, not only in Chapter I, but in all of its 7 chapters, in avoidance of ambiguities, has also clarified, changed and unified time limits from “1 month” to “30 days” and from “3 months” to “90 days”. E.g., Articles 145 and 171 of the PRC Civil Code now state “30 days” instead of “1 month” and Article 152 of the PRC Civil Code now states “90 days” instead of  “3 months”.

b) Chapter II, Property Rights

Chapter II, Property Rights includes 258 provisions among which 12 provisions have been newly added in relation to the right to reside, land use rights, ownership of subject matters and mortgages, 32 provisions have been materially amended, 99 provisions have been slightly amended and 115 provisions have remained unchanged compared to the current PRC Property Law.

(1) Introduction of Right to Reside

In Chapter II, Property Rights, for the first time the right to reside has been introduced in PRC civil law. According to Articles 366 to 371 of the PRC Civil Code, to meet their needs of living and residing, persons with the right to reside may occupy and use others’ properties on the basis of a written contract or through a will. The establishment of such right to reside must be registered with the competent registration authority (the exact authority is not yet clarified in the PRC Civil Code) and such right will be created upon registration with the authority.

(2) More Protection on Owners’ Rights of Buildings

Article 277 of the PRC Civil Code adds that, for the establishment of the owners’ meeting and the election of the owners' committee, both the related departments under the local people's government and the residents committee shall provide guidance and assistance.

Further, the thresholds for matters that shall be jointly determined by all owners are lowered, especially on using funds for the maintenance of a building and the associated facilities. Article 278 of the PRC Civil Code changes the previous requirement that. “the consent of two thirds or more of the total owners with private areas accounting for two thirds or more of the total area of the building must be obtained” for the purpose of using such funds to “two thirds or more of the total owners with private areas accounting for two thirds or more of the total area of the building must attend the voting”. Additionally, in accordance with Article 281 of the PRC Civil Code, the owners' meeting or the owners' committee may apply to use the funds for maintenance of a building and the associated facilities when the building and the associated facilities shall be maintained in emergency situations.

(3) Requirement on Active Coordination in Temporary Requisition

Articles 245, 285 and 286 of the PRC Civil Code allow in emergency situations, for disaster relief or for prevention and control of epidemics, such as COVID-19, the requisition of immovables or movables owned by entities and individuals subject to statutory authorisations and procedures. The owners of the property are required to actively coordinate with the competent property management entity when requisition of immovables or movables are required according to statutory authorisations and procedures. The property management entity, as required by the PRC Civil Code and according to statutory authorisations and procedures, shall execute emergency response measures in case of the aforementioned emergency situations, for disaster relief or for prevention and control of epidemic, such as COVID-19.

(4) Changes Regarding Land Use Rights

The current PRC Property Law only states that construction land use rights for residential property shall be automatically renewed upon expiry of the contractual term, without any stipulations on the requirements for such renewal. Article 359 of the PRC Civil Code now expressly states that when construction land use rights for residential property have been automatically renewed, the payment as well as the reduction or exemption of relevant renewal fees shall be made in accordance with relevant laws and regulations. However, so far, it is still unclear to what laws and regulations reference is made and what the exact prerequisites are.

(c) Chapter III, Contracts

Chapter III, Contracts, contains 526 provisions among which 70 provisions have been newly added, 112 provisions have been materially amended, 224 provisions have been slightly amended and 120 provisions remained unchanged compared to the current PRC Contract Law.

Below are some examples of changes:

(1) Provision on Conclusion of Electronic Contracts

Article 491 of the PRC Civil Code deals with the conclusion of electronic contracts, i.e. where the information on any commodity or service released by a party through information networks, such as the Internet, meets the conditions of an offer, and the other party selects the said commodity or service and successfully submits an order, a contract is concluded, unless otherwise agreed by the parties. This is also in line with Article 49 of the PRC E-commerce Law.

(2) Additional Types of Typical Contracts

In addition to the 15 types of typical contracts contained in the current PRC Contract Law, 4 additional kinds of typical contracts have been included into Chapter III of the PRC Civil Code, i.e. Guarantee Contracts, Factoring Contracts, Property Service Contracts and Partnership Contracts.

Rules on other typical contracts such as Sales Contracts, Loan Contracts, Lease Contracts and Passenger Transportation Contracts have been amended and are now more specific compared to the respective provisions contained in the current PRC Contract Law. E.g., according to Article 641 of the PRC Civil Code, with regard to retention of title in a sales contract, where the ownership of the subject matter retained by the seller has not been registered, the seller may not challenge any bona fide third party. Article 680 of the PRC Civil Code now expressly stipulates that it is prohibited to lend at high interest rates and loan interest rates shall not violate the relevant provisions of the State. Further, Article 734 of the PRC Civil Code added that upon the expiration of a lease term, the lessee shall have the priority to lease a house under the same conditions. According to Article 819 of the PRC Civil Code, passengers are required to render active assistance and cooperation regarding reasonable arrangements made by a carrier for safe transportation.

(3) Amendment to Provisions on State Procurement Contracts

In addition to the stipulations on state procurement as contained in the current PRC Contract Law, Article 494 of the PRC Civil Code stipulates that in case the State, based on necessities due to emergency situations, disaster relief and prevention and control of epidemics or other necessities, issues a mandatory assignment or a state procurement order, the relevant civil subjects shall conclude contracts based on the rights and obligations as provided for by the relevant laws and administrative regulations. Further, a party that is under the obligation to make an acceptance in accordance with the provisions of the law or administrative regulations must not refuse to comply with the other party's reasonable request to conclude a contract.

(4) Newly Implemented Stipulations on Agency Without Authority and Unjust Enrichment

Chapter III also newly provides for general rules on agency without authority (gestio negotiorum) and unjust enrichment. 

Articles 979 to 984 of the PRC Civil Code deal with agency without authority (gestio negotiorum). These provisions, inter alia state, that where an administrator who does not have statutory or contractual obligations manages the affairs of others to avoid losses to the interests of others, the administrator may request the beneficiaries to reimburse the necessary expenses for managing the affairs. Where the administrator suffers losses from managing relevant affairs, the administrator may further request the beneficiaries to pay appropriate compensation. However, where the management matters do not comply with the true intent of the beneficiaries, the administrator shall not be entitled to the rights stipulated above, except where the true intent of the beneficiaries is contrary to laws or public order and morals. Further, the administrator shall manage the affairs of others in a manner in favour of the beneficiaries. Where the discontinued administration is unfavourable to the beneficiaries, it shall not be discontinued without justified reasons. In addition, the administrator shall promptly notify the beneficiaries when managing their affairs (if possible), it shall report the status of administration matters to the beneficiaries upon completion of the respective administration and promptly hand over the property obtained from managing relevant affairs to the beneficiaries.

Articles 985 to 988 of the PRC Civil Code deal with unjust enrichment. According to these provisions, where a beneficiary obtains unjust benefits without any legal basis, the person who suffers losses may request the beneficiary to return the benefits obtained, except under any of the following circumstances: (i) payments made for the fulfilment of moral obligations; (ii) payment of debts prior to maturity; and (iii) repayment of debts knowingly with no payment obligation. Where a beneficiary does not know and should not have known that the benefit it obtains has no legal basis and the benefit it obtains no longer exists, the beneficiary shall not be obligated to return such benefit. Where a beneficiary knows or should have known that the benefit it has obtained does not have a legal basis, the person suffering losses may request the beneficiary to return the benefit it has obtained and compensate the person for his or her losses in accordance with the law. Where a beneficiary has transferred the obtained benefits gratuitously to a third party, the person suffering losses may request the third party to bear the obligation to return the benefits within a corresponding scope.

These legal concepts are not dealt with in the current PRC Contract Law.

(d) Chapter IV, Personal Rights

Chapter IV, Personal Rights, deals with personal rights. It clarifies the content, limits and protection methods regarding personal rights. Unlike the other chapters, the chapter on personal rights is the only part of the PRC Civil Code that did not have its own standalone statute before (relevant provisions have only been included in the General Principles of the PRC Civil Law so far). In Chapter IV, Personal Rights, of the 51 provisions, 43 provisions are newly added while 8 provisions have been materially amended compared to the stipulations in the current General Principles of the PRC Civil Law.

(1) Provisions on Organ Donations, Human Genes and Embryos

Chapter IV provides for general rules on organ donations as well as medical and scientific activities in relation to human genes and human embryos.

(2) Provisions on Preventing and Prohibiting Sexual Harassment

It also contains criteria for identifying sexual harassment and stipulates obligations of entities, including enterprises and schools, to prevent and prohibit sexual harassment. Where a person sexually harasses another person against his/her will through verbal behaviour, words, images, physical behaviour or other forms, the victim has the right to request the harassing person to assume civil liability according to the law. Potential liabilities for the relevant entities, however, are not specified in the PRC Civil Code.

(3) Protection on Natural Person’s Portrait and Voice

Both the portrait and voice of natural persons are protected by the law. The term “portrait” refers to an identifiable external image of a specific natural person that is reflected through image, sculpture, drawing or any other carrier. Infringements on portrait and voice by means of high technology, such as Artificial Intelligence and voice change technologies, are expressly prohibited. 

(4) Protection of Privacy and Personal Information

Chapter IV defines “privacy” and “personal information” as “the peace of a natural person’s private life as well as private space, private activities and private information, etc. that a natural person does not wish to be known by others” and “various kinds of information that is electronically or otherwise recorded and can identify a specific natural person separately or in combination with other information, including name, date of birth, ID card number, biometric information, address, mobile phone number, email address, health information and whereabouts information of a natural person”, respectively.

Chapter IV further lists behaviours that are deemed as infringements to the right to privacy of others. Without express consent from the right holder, no person shall (i) disturb others' private peaceful life by phone calls, SMS, IM, emails or flyers, (ii) enter, make pictures or videos or peep at others' residences, hotel rooms and other private spaces, (iii) make pictures or videos, peep at, eavesdrop, or make public others' private activities, (iv) make pictures or videos or peep at the private parts of others' bodies, or (v) process others' private information.

Chapter IV further contains provisions on the protection of personal information which provides guidance on how to collect, use and protect personal information. Different from the current PRC Cyber Security Law that applies to the construction, operation, maintenance and use of networks as well as the supervision and administration of cyber security within the PRC, the PRC Civil Code regulates all information processors regarding their collection, storage, use, processing, transmission, provision and disclosure of personal information. According to Article 1039 of the PRC Civil Code, e.g., state organs and statutory agencies performing administrative functions and their staff members shall keep in confidence the private and personal information of natural persons they get to know during the performance of their duties, and may not divulge or provide such private and personal information to others illegally. Article 1037 of the PRC Civil Code stipulates that where a natural person discovers that an information processor processes his/her personal information in violation of the provisions of laws and administrative regulations or the parties’ relevant agreement, he/she shall have the right to request prompt deletion of the information by the information processor.  Further, pursuant to Article 1038 of the PRC Civil Code, where personal information is or may be divulged, falsified or lost, the respective information processor shall take immediate remedial measures, and inform the natural person concerned and report the same to the relevant competent department as required.

(e) Chapter V, Marriage and Family

Chapter V, Marriage and Family, is drafted based on the PRC Marriage Law and the PRC Adoption Law. It has 79 provisions, among which 8 provisions have been newly added, 32 provisions have been materially amended, 30 provisions have been slightly amended and 9 provisions remained unchanged compared to the current PRC Marriage Law and PRC Adoption Law.

(1) Introduction of the 30-days “Cooling-off” Period

The most important addition in Chapter V, Marriage and Family, is likely the introduction of a 30-days “cooling-off” period after the filing of a divorce and before the official registration of a couple’s divorce in the PRC. During such 30-days period, either party may revoke his/her application for the divorce.

(2) Clarification of the Effect of Certain Diseases on a Marriage

The current stipulation contained in Article 7(2) of the PRC Marriage Law stating that no marriage may be entered into by a person “suffering from a disease which is regarded by medical science as making the respective person unfit for a marriage” has not been implemented into the PRC Civil Code. According to the PRC Civil Code, this is no longer a situation where a marriage is prohibited. However, a person suffering from a serious illness shall faithfully inform the other before marriage registration. If he/she fails to do so, the other may appeal to the People's Court for annulment of such marriage.

(3) More Specifics on Joint Debts of Married Couples

The scope of married couples’ joint debts is now expressly clarified in the PRC Civil Code. According to the PRC Civil Code, debts created with the common intention of a married couple, such as in case of joint signing by husband and wife, or which have later been agreed to by the husband or wife to be shared as well as debts made for the daily needs of the family, even if they have been made in the name of only one spouse, are deemed to be joint debts of a married couple.

Personal debts not created for the daily needs of the family are not deemed as joint debts of a married couple, but as the respective spouse’s personal debts, unless a creditor can prove that the debts have been used for the common family life or are based on the common expression of intention of the married couple.

(f) Chapter VI, Right of Inheritance

Chapter VI, Right of Inheritance, amended and provides for more details and additional stipulations compared to the current PRC Inheritance Law effective since 1 October 1985. Among its 45 provisions, 7 provisions have been newly added, 16 provisions have been materially amended, 13 provisions have been slightly amended and 9 provisions remained the same compared to the current PRC Inheritance Law.

Inter alia, there are relevant changes to the rules of inheritance and the forfeiture of the right of inheritance.

(1) Acceptance of New Types of Wills and Authority of Wills

New methods of wills such as printed-out wills (which shall be witnessed by two or more witnesses and be signed and dated by the testator and the witnesses) and wills made in the form of a sound or image recording (which shall be witnessed by two or more witnesses and the testator and the witnesses shall record their names or portraits and specify the date in the sound or image recordings) are now expressly recognized according to Articles 1136 and 1137 of the PRC Civil Code. Further, wills that have been made by a testator before a notary public will no longer enjoy priority and shall have the same authority as the respective testator’s other wills.

(2) Introduction of a Testamentary Executor

Chapter VI also, for the first time, introduces stipulations on testamentary executors and clarifies the establishment, functions, powers and liabilities of such testamentary executors. 

(g) Chapter VII, Tort Liability

Chapter VII, Tort Liability, amended existing stipulations of the current PRC Tort Law effective since 1 July 2010, and provides for more details and additional stipulations. It covers a total amount of 95 provisions, among which 8 provisions have been newly added, 44 provisions have been materially amended, 23 provisions have been slightly amended and 20 provisions have remained unchanged compared to the current PRC Tort Law.

Inter alia, producers and distributors’ liabilities in case of a recall have been increased and shall include the necessary expenses incurred by the persons or entities whose rights have been infringed upon.

(1) More Detailed General Rules

In order to better deal with tort disputes, Chapter VII includes amendments and more details on general rules, such as the principle of attribution of responsibility in tort, joint and several liability in tort, reduction or exemption of tort liabilities, etc.

(2) Introduction of “Self-risk” and “Self-help” Rules

Among these principles, two principles, i.e. “self-risk” rule and “self-help” rule may be regarded as two of the most important newly-established rules. The “self-risk” rule clarifies that if a person voluntarily participates in cultural and sports activities with a certain level of risk and is damaged by the behaviour of any other participant, such person shall not request the other participant to bear tort liability, unless the damage is caused by such other participant's intentional misconduct or gross negligence. According to the “self-help” rule, if a person whose legitimate rights and interests are infringed upon cannot be protected by state organs in time as the situation is urgent and will have his or her legitimate rights and interests irreparably damaged if no measures are taken immediately, such person may take reasonable measures such as withholding the property of the infringing party to the extent necessary to protect his or her legitimate rights and interests, provided, however, that he shall immediately request the relevant state organ to handle the matter. However, if the victim takes improper measures causing damage to any other person, he/she shall bear tort liability.

4. Conclusion

The adoption of the PRC Civil Code constitutes a milestone of recent PRC legislation. Many commentators are of the opinion that the PRC Civil Code, as the first combined codification of the PRC civil law, is a paramount step towards a more systematised and clear legal system in the PRC. It is to be hoped that the PRC Civil Code will constitute the foundation for a more modern civil law system and that it will contribute to social stability, economic progress and legal certainty. The PRC Civil Code will have impact on nearly all business activities within the PRC and on companies located in or operating in relation to the PRC. However, it still remains to be seen how the PRC Civil Code will be implemented and enforced in practice. Only this will show the real impact of the new law. Further, it is expected but so far still not entirely clear whether the numerous existing interpretations of the PRC Supreme People’s Court on the above mentioned laws to be abolished will continue to be effective or amended in order to be consistent with the PRC Civil Code. The PRC Supreme People’s Court intends to publish an interpretation of the PRC Civil Code within this year. It is to be expected that this will provide for more guidance and clarity.

CMS, China will issue a series of additional newsletters in the near future in order to provide more comprehensive analyses on the PRC Civil Code and its impact, especially regarding Chapter II, Property Rights, Chapter III, Contracts, and Chapter VII, Tort Liability.