Key Points:

  • Clarification of “expiration of limitation period” as a defense to a claim
  • Clarification of when limitation periods commence in certain actions
  • Causes and circumstances that interrupt or suspend limitation periods

The Supreme People’s Court has announced the Provisions of the Supreme People’s Court on Several Issues Regarding the Application of Limitation of Actions in the Trial of Civil Cases, which took effect September 11, 2008 and which supplements the PRC Contract Law, the General Principles of the Civil Law of the PRC and the PRC Civil Procedure Law. The stated objective of the provisions is to ensure the correct application of limitation periods in civil trials to protect the parties’ interests.

Under the provisions, courts are prohibited from supporting any agreement by parties to an action to extend or shorten the time limitation period for commencing a civil action or from waiving an interest in the statutory time limitation periods. When a party in a civil action fails to raise the issue of statutory time limitations, the court is prohibited from taking the initiative in applying any time limitation argument when rendering its judgment. Moreover, if a party fails to raise the issue of the limitation period at the first instance trial, then that argument cannot subsequently be raised in any second instance trial unless the defendant can present new evidence proving that the statutory limitation period for the filing of the claim by the plaintiff has expired.

The provisions include confirmation that when parties have agreed to payment of a debt in installments, the time limitation period shall commence upon the expiration of the date when the last installment fell due.

Where a contract does not contain a particular performance period, but the performance period can be determined by reference to Arts. 61 and 62 of the PRC Contract Law, then the limitation period will be calculated from the date of expiration of the determined performance period. However, if the performance period cannot be determined, then the limitation period will be calculated from the date of expiration of any grace period granted by the creditor to the debtor to perform. If, after a creditor claims a right against the debtor for the first time, the debtor confirms that it will not perform the alleged contracted obligation, the relevant limitation period shall be calculated from the date when the debtor confirms that it will not perform.

Other clarifications include confirmation that when a party revokes a contract, the limitation period for filing any claim for restitution or compensation shall be calculated from the date of contract revocation. The limitation period in an action for restitution arising from unjust enrichment will be calculated from the date when the claimant knew or ought to have known of the unjust enrichment of the other party. Similarly, when services rendered cause losses – i.e., are not rendered in compliance with the contract terms – the time limitation for the filing of a claim for compensation will be calculated from the date when the claimant knew or should have known of the damage caused. When a party files a written or oral complaint with a court, the limitation period will commence from the date of that filing. The same principle applies where a party files for settlement of a dispute before a mediation commission or state organization empowered to resolve disputes. However, when such an organization rejects or revokes a claim, the time limitation period will be recalculated from the date when the claimant first knew or should have known of the rejection or revocation of the claim. If a party claims that a relevant limitation period has expired, but evidence exists that the party agreed to perform (or has actually voluntarily performed) the outstanding obligation, the court must reject the claim to expiration.

The provisions also clarify circumstances that interrupt the relevant limitation period: (i) when a document detailing the claim is served on the other party who in turn signs or seals the document (indicating acknowledgment of receipt) or, in the absence of a signature or seal, service on the other party is otherwise proved; (ii) when a claimant makes a claim through correspondence including a letter or via other data means, and the correspondence reaches or should reach the other party, (iii) when the claimant is a financial institution and deducts principal plus interest from the account of the other party; or (iv) when the location of the other party is unknown but the claimant publishes his or her claim against the other party in a national medium such as a national newspaper or in a provincial medium of influence at the place of domicile of the other party, except where law or judicial interpretations otherwise direct. When a creditor assigns his or her rights to a third party, interruption of the relevant limitation period will occur when the notification of assignment reaches the debtor.

If the other party is a natural person, notice may be served on the party, or on a relative of full civil capacity residing with the other party, or on any authorized person. In the case of a non-natural legal person, service can be achieved on the legal representative or the relevant department responsible for receiving letters or correspondence or on any authorized person. Interestingly, any cause or circumstance that causes interruption of a limitation period with respect to any joint or several creditors interrupts the limitation period for all joint and several creditors. The same principle applies to joint and several debtors. The provisions also detail other causes and circumstances that a court may determine would give rise to an interruption of the limitation period (Art. 13), as well as events and circumstances that cause the limitation period to be suspended (Art. 20).

When the limitation period for the payment of a debt expires, any guarantor of the debt will similarly be able to rely on that expiration. However, if the guarantor assumes the liability, pays the guaranteed debtor’s debt and seeks restitution but fails to claim expiration of the relevant limitation period, the court will not support it unless the primary debtor agrees to reimburse the guarantor.

These provisions apply immediately to all civil cases that are at first or second instance trial but do not apply to any retrial of a case that was first tried before the provisions became effective. They are a welcome clarification of the intricacies of China’s statutory provisions on time limits for initiating civil actions and will serve to greatly assist both disputing parties and the People’s Courts in resolving issues of when limitation periods commence, expire and are suspended.