China’s Supreme People’s Court (the Supreme Court) recently issued a set of provisions to clarify and ensure consistent enforcement of the statutes of limitations in civil cases. These provisions, entitled the Provisions of the Supreme People’s Court on Several Issues Concerning the Application of the Statutes of Limitations During the Trial of Civil Cases (the Provisions), took effect on September 1, 2008. The Supreme Court directed Chinese courts at all levels to conform to the Provisions when hearing civil cases.

General Rules on the Statutes of Limitations in Civil Cases

Prior to the Provisions, the General Principles of Civil Law of the PRC (????, the GPCL) set forth in general terms statutes of limitations, or maximum periods of time within which a party could bring a claim against another party, for civil cases. According to the GPCL, the general statute of limitations is two years from the date when the injured party knew, or should have known, that his or her rights have been infringed. However, the GPCL also provides that certain cases, such as personal injuries and rental disputes, may have a one-year statute of limitations.

Following the issuance of the GPCL, the Supreme Court attempted to clarify several issues concerning the statutes of limitations in civil cases, but these attempts failed to provide clear guidance for interpreting the statute of limitations system. Thus, in February 2007, the Supreme Court began drafting the Provisions, which constitute a fresh and holistic interpretation of the statute of limitations system, to guide courts in their application of the statutes of limitations in civil cases.

Claims Subject to the Statute of Limitations

The Provisions state that a debtor may make a statute of limitations defense against a creditor’s claim, but that the statutes of limitations does not apply to all claims. The claims not restricted by the statutes of limitations include those for (1) payment of the principal and interest of a deposit; (2) payment of the principal and interest of government bonds, financial bonds, or corporate bonds issued to non-specific parties; and (3) payment of the capital contribution arising from any investment relationship.

The Supreme Court justified its exemption of the above claims from the statutes of limitations on the grounds that such exemption promotes the public interest and protects the financial health of companies as well as the interests of investors who have fulfilled their obligation to contribute capital to companies.

The Court Is Neutral with Respect to the Statute of Limitations

Previously, a court could deny a plaintiff’s claim by finding that the statute of limitations had expired even if the defendant did not raise the statute of limitations defense. The Provisions, however, prohibit the court from proactively invoking the statute of limitations. Now, the defendant must raise it as a defense for the court to consider it.

The Provisions also forbid the court to mention or discuss the statute of limitations if the defendant does not raise the issue first. As the Supreme Court has explained, this rule is consistent with the autonomy principle and serves the interest of justice as the court should not help defendants evade their obligations by handing them a defense that automatically trumps the plaintiffs’ rights. The Supreme Court notes that this rule allows courts to maintain neutrality in presiding over cases.

Limited Opportunity to Invoke the Statute of Limitations

In general, the Provisions only allow a defendant to raise the statute of limitations defense in a trial of first instance. Thus, if a defendant fails to raise the statute of limitations defense in a timely manner, the court will not allow the defendant to petition for a retrial on the basis that the statute of limitations expired during the original trial. A court will accept a statute of limitations defense in a second trial only if the defendant has gathered new evidence that was not available during the original trial to prove that the statute of limitations has expired.

The court will not recognize any agreement between the parties regarding extending or reducing the statute of limitations or waiving the right to invoke the statute of limitations defense.

Interruption of Statutes of Limitations

The GPCL provides that a statute of limitations may be discontinued if a suit is brought or if one party makes a claim for or agrees to the fulfillment of obligations. A new statute of limitations will start at the time of the discontinuance.

The Provisions describe four circumstances that fall within the meaning of “one party makes a claim for, or agrees to, the fulfillment of obligations” and thus cause an interruption of the statute of limitations. These circumstances are: (1) where the claimant delivers documents claiming its rights to the opposing party and the opposing party affixes its signature or seal to the documents (or, in the absence of signature or seal, it can be otherwise proven that such documents were served); (2) where the claimant makes a claim by sending a letter or electronic data, and the letter or electronic data reaches or should have reached the opposing party; (3) where the claimant is a financial institution and it deducts the owed principal and interest from opposing party’s account according to the law or according to an agreement made by both parties; or (4) where the defendant is unable to be found, and the claimant publishes a statement claiming its rights in a major media outlet at the national or provincial level and in the place where the defendant was last known to be located.