By Yoke Har Lee
New Zealand business can feel more comfortable about signing contracts in China, says law firm Russell McVeagh.
Starting today, China will enforce a unified and comprehensive code of contract law designed to match global standards.
Russell McVeagh senior solicitor Wei Ling Lim, who works in the firm's Asian practice
group, said the changes were a big shift for the Chinese.
The new contract law will apply to both economic and non-economic contracts, and to contracts concluded between Chinese and foreigners.
Previously only written contracts were recognised. Under the new law, contracts concluded orally and by electronic transmission will also be recognised.
Other aspects of contract law being introduced include:
* The concept of apparent authority. This addresses concerns raised by foreign traders and investors over the years as to whether the official whom they were dealing with had the authority to enter into and perform the contract.
* The introduction of a no-fault liability regime. For example, if a contract is entered into to deliver a product and it is not honoured, the aggrieved party can raise this in court regardless of where the fault lies.
Wei Ling Lim said a defaulting party cannot void a contract on the basis of fraud.
Only the injured party can petition the court for termination of a contract on the basis of fraud.
She said that in past breaches of contract, it was difficult to know the position a Chinese court would take, because the principles it applied were likely to differ from those familiar here.
Under the old regime, advising New Zealand traders and investors in China had been difficult, especially in assessing the risk of non-performance by the Chinese.
"What remains to be seen is whether the revolutionary new law reform will raise the level of confidence among foreign traders and enterprises to trade with Chinese entities."
