Contract formation

Good faith in negotiating

Is there an obligation to use good faith when negotiating a contract?

The good faith principle is recognised and embodied in the PRC Contract Law. It is expressly provided in the PRC Contract Law that the parties shall follow the principles of fairness and good faith in entering into and performing the contracts. In particular:

  • one party shall not, under the disguise of forming a contract, conduct negotiations with the other party with malicious intention to cause the other party to suffer loss;
  • one party shall not conceal important facts or make false statements in negotiating and entering into contracts; and
  • the parties shall keep confidential the information received during the negotiation and shall not use commercial information for any illegal or improper purposes.
‘Battle of the forms’ disputes

How are ‘battle of the forms’ disputes resolved in your jurisdiction?

The PRC Contract Law requires that the terms of the acceptance shall be identical to those of the offer. PRC law distinguishes between material and non-material alterations to the offer. The offeree must accept the terms of the offer in their entirety, and shall not add, qualify or modify any of those terms. If the acceptance of an offer has materially altered the terms of the offer, then such acceptance will be regarded as a counter-offer, rather than an acceptance of the original offer. Where the changes to the offer are not material, the acceptance is valid and recognised, and the terms of the acceptance will prevail, unless the offeror objects to such changes without delay, or if the offer indicated that no changes to the terms could be made in the acceptance. Changes concerning the subject matter, quantity, quality, price, time and place for the performance, liabilities for breach of contract and dispute resolution are considered material changes to the terms of the offer.

Language requirements

Is there a legal requirement to draft the contract in the local language?

There is no requirement under PRC law that contracts must be drafted and executed in the local language. In practice, it is not uncommon for contracts entered into in China to be drafted and signed in bilingual form with both Chinese and foreign language versions. But one important issue to note is that some contracts must be approved by, or filed with, Chinese government authorities. Generally speaking, the authorities and Chinese courts are reluctant to review documents drafted in a foreign language. Care must also be taken in preparing the bilingual version to maintain consistency of the language.

Online contracts

Is it possible to agree a B2B contract online?

‘Click-wrap’ contracts have full legal effect under the PRC Contract Law and the PRC Electronic Signatures Law. The National People’s Congress also released on 27 December 2016 the E-Commerce Law of the People’s Republic of China (draft) (Draft E-Commerce Law) for consultation. On 7 November 2017, the second draft of the E-Commerce Law of the People’s Republic of China (Second Draft E-Commerce Law) was released for consultation. On 1 January 2019, the E-Commerce Law of the People’s Republic of China (E-Commerce Law) came into force, and click-wrap contracts are now governed by it. Parties can freely agree whether to use a click-wrap contract and the legal validity of an online contract cannot be denied simply because the contract is entered into electronically.

However, certain conditions must be satisfied to determine whether an online contract is lawfully entered into. According to the Electronic Signatures Law, if a click-wrap contract can effectively show the content it carries and is readily available for retrieval and use, it will be deemed as being executed in a written form in compliance with Chinese law. In addition, under the E-Commerce Law, if goods or services published by an e-commerce operator meet the requirements of an offer and a customer places an order, a click-wrap contract is validly formed unless otherwise agreed between the parties. The e-commerce platform operator has the legal obligation to keep records of the transaction information for at least three years.

Disputes in relation to click-wrap contracts can be resolved by the following methods:

  • online dispute resolution mechanism established by e-commerce platform operator;
  • mediation by consumer organisations, industry associations, and other legally established mediation organisations;
  • arbitration or court proceedings.

In case of disputes where parties must prove the authenticity of an electronic contract, the court will consider the following factors:

  • whether the method of generating, storing and transmitting electronic data is reliable;
  • whether the method of maintaining the completeness of electronic data content is reliable; and
  • whether the method of ascertaining the sender of electronic data is reliable.