Have you gotten the new rules of the “Standard terms”?

The “Standard Terms” (“STs”) refers to the clauses which have been drafted by one party in advance for repetitive use, and would not been or could not be negotiated with the counterparty. STs is very common in telecommunication service contracts, insurance contracts, various online shopping contracts, and etc. Normally, the providers are mightier, in order to maximize their rights and minimize their obligations and responsibilities, the providers usually set such terms stricter or less favorable to the counterparty. Where such terms are too strict, and obviously unfair to the counterparty, the law would interfere relevant contracts. The “Contract Law” prescribes several restrictive provisions on STs, if any STs violates restrictive provisions, it shall be the “High-handed Clauses” and be determined as invalid.

From January 1, 2021, the “Civil Code” replaces the “Contract Law”. The rules regarding STs have changed accordingly, mainly in the following aspects:

First, the provider shall draw the counterparty’s attention to more information, or explain more to the counterparty. Article 39 of the “Contract Law” prescribes that “the drafter must take reasonable steps to draw the other party’s particular attention to those clauses which eliminate or limit the said party’s liabilities.” However, Article 496 of the “Civil Code” furtherly requires the provider to remind the counterparty of the provisions that greatly affect the counterparty, such as those that exclude or mitigate the liability of the provider.

Then, how to explain the provisions that greatly affect the counterparty?

The “Contract Part of Civil Code —- Understanding and Application” explains that the quantity, quality, price or remuneration, time limit, place and method of performance, liability for breach of contract,and dispute settlement method and etc., which are listed in Article 470 of the “Civil Code” shall be deemed as provisions that greatly affect the counterparty. However, in individual cases, the determination on such provisions shall take several factors into consideration, and those factors include the types, habits and characteristics of specific contracts and transactions, and etc. It is worth to be pointed out that for those STs involving consumers, relevant business operators shall pay attention to Article 26 of the “Law on the Protection of Rights and Interests of Consumers”, which prescribes, “for business operators using standard clauses in their business activities, contents such as quantity and quality of goods or services, price or fees, performance period and method, safety precautions and risk warning, after-sale services, civil liability, etc. which are significant to the consumer shall be highlighted to consumers in a prominent manner.”

Second, to add consequences of the STs provider’s failure to perform the obligation of reminding or explanation. There is no explicit provision in the “Contract Law”. Article 496 of the “Civil Code” clearly stipulates that “if the party providing the standard terms fails to perform the obligation of reminding or explanation, causing the other party to fail to notice or understand the terms in which it has a material interest, the other party may claim that the terms do not form the contents of the contract”. This article aims to ensure that the counterparty reaches an agreement with the provider on the premise of understanding STs clearly. It should be noted that “even if the provider of STs fails to perform the obligation of reminding or explanation, if the counterparty of the contract notices such terms in the contract and understands the meaning of the terms, it is not entitled to claim that the terms are not included in the contract.” (see “Contract Part of Civil Code – Understanding and Application”).

Third, the “Civil Code” limits the invalidity of STs to the following three situations: i) to satisfy the general provisions on the invalidity of civil legal acts; ii) to unreasonably exempt or reduce its liability, increase the liability or limit the major rights of the counterparty; and iii) to exclude the main rights of the counterparty. Under the above circumstances, even if the provider performs the obligation of reminding and explanation, such STs still shall be decided as invalid.

It should be noted that, compared with the “Contract Law”, the “Civil Code” adds “unreasonably” as a restrictive factor in circumstance ii) aforesaid. That means, if STs of exempting or reducing the provider’s liability, increasing the liability or limiting the major rights of the counterparty are reasonable, the provider has performed the obligation of reminding and explanation, and there are no other invalid circumstances, then such STs shall be determined as valid. Compared with the one-size-fits-all provisions of the “Contract Law”, the revised provision is more in line with commercial needs, because the “Civil Code” requires the party accepting STs to prove “unreasonableness”.

Based on the abovementioned new rules of the “Civil Code”, if an enterprise has to provide STs, it shall pay attention to remind the counterparty in a reasonable manner, such as using symbols, colors, or bolding, or increasing fonts to make the relevant clauses more conspicuous. With respect to words, concepts or legal consequences that non-professionals have difficulty in understanding, it is better to make explanations in written form so as to ensure the other party understands the true meaning and legal consequences of the provision to avoid its own risks. In addition, after the “Personal Information Protection Law” takes effect, enterprises may formulate relevant internal and external rules or add clauses on agreeing to obtain personal information to the contracts of individuals. In this case, such clauses also constitute STs, and enterprises shall fulfill their obligations of reminding and explaining.