SAIC Strengthens Supervision and Disposal of Contract-Related Illegal Activities


Administrations for industry and commerce at various levels used to supervise and manage contract-related illegal activities pursuant to the Interim Provisions on Investigating and Punishing Contract-related Illegal Activities (the “Interim Provisions”), which were abolished in 2008. Since then, there have been no laws, regulations or rules in that regard until the State Administration for Industry and Commerce promulgated the Supervision and Disposal Measures for Contract-related Illegal Activities (the “Measures”) on October 13, 2010, which took effect on November 13, 2010.

The Measures specify that “illegal activities” shall mean the activities of a natural person, legal person or other organization that violate laws, regulations and the Measures by taking advantage of contracts for illegitimate gains.

According to the Measures, no party may, by taking advantage of a contract, shall commit the following fraudulent activities:

  1.  Forge a contract;
  2.  Fabricate its status as a party to the contract, pose as others, or misappropriate the names of others to conclude a contract;
  3. Fabricate the subject matter of the contract, source of goods, or sales channels to induce others into entering into and performing contracts;
  4.  Publicize or use false information to induce others into entering into contracts;
  5.  Concealing material facts to induce the other party into making wrong expressions of its will and entering into a contract, or performing a contract;
  1.  Induce the other party to enter into or perform a contract by first performing a contract for a small amount, or partially performing a contract, while the inducing party is not actually capable of fulfilling the contract at issue;
  2.  Maliciously provide for terms that cannot be practically performed to lead to the other party’s failure to perform a contract;
  3. Fabricate false reasons to suspend/terminate a contract for purposes of defrauding others;
  4.  Provide false guarantee; or
  5. Utilizing other fraudulent measures to conclude or perform a contract.

Activities carried out by taking advantage of a contract, which may infringe upon interests of the State and public interests, are also prohibited.

Meanwhile, unlike the previous Interim Provisions, there are new rules relating to provisions under standard contracts that all entities doing business in China should be aware of, as they create an immediate compliance risk relating to contracting with consumers using standard contracts.

First, business operators that enter into standard contracts with consumers may not exempt themselves from the following liabilities in the standard provisions:

  1.  Liabilities for consumers' personal injury;
  2.  Liabilities for consumers' property loss due to willful misconduct or gross negligence;
  3.  Liabilities pertaining to warranties for commodities or services provided, as assumed in accordance with laws; 
  4. Liabilities for breach, as assumed in accordance with laws;
  5.  Other liabilities to be assumed in accordance with laws.

Secondly, business operators are also required to refrain from enhancing the burden of the following liabilities of consumers in the standard provisions:

  1.  Assumption of liquidated damages or damages in excess of statutory or reasonable amounts;
  2.  Assumption of liabilities relating to operational risks that should be assumed by the provider of the standard provisions;
  3.  Other liabilities not to be assumed by consumers, according to laws and regulations.

And thirdly, consumers’ rights listed as follows shall not be excluded by business operators in the standard provisions:

  1.  Right of amending or terminating a contract in accordance with laws;
  2.  Right of claiming liquidated damages;
  3.  Right of claiming damages;
  4.  Right of requiring explanation of standard provisions;
  5.  Right of filing an action regarding disputes on standard provisions;
  6.  Other rights which consumers shall be entitled to.

Violating relevant provisions of the Measures can subject the parties involved to administrative penalties, or even criminal liabilities if a crime is committed.

  •  Supervision and Disposal Measures for Contract-related Illegal Activities
  •  合同违法行为监督处理办法
  •  Issuing Authority: State Administration for Industry and Commerce
  •  Date of Issuance: October 13, 2010 / Effective Date: November 13, 2010