Ik Wei Chong, Clyde + Co, Shanghai
On 15 March 2017, The Chinese GeneraI Provisions of CiviI Law (the General Provisions) were formally adopted at the 5th Session of the 12th National People Congress of the People’s Republic of China.
The General Provisions are divided into 11 Chapters, comprising 206 Articles. They are based on, and represent a development of The Chinese General Principles of Civil Law (the General Principles) enacted in 1986. The new rules will take effect on 1 October 2017.
- Time Limit
A significant change concerns the time limit. The pre-existing 2-year time limit under The General Principles has long been decried as too short. Recent years have witnessed substantial changes to people’s ways of lives; increasingly innovative ways are devised to do business.
The ever complicated matrix of rights and obligations makes a compelling case for a longer time limit. In judicial practice, it has been noted that the two-year time limit is so inadequate that losses in the billions of Chinese Renminbi have been caused to the financial sector alone. In response to this, The Genera! Provisions moderately extend the time limit for bringing an action to three years.
1a) Time limit in subrogated claims
Due to the above change in the legal position of time limit under the General Provisions , the 3- year time limit would in principle be applicable to insurance subrogated claims I recovery claims against liable parties. However, if a specific law on certain aspects or an international convention to which China is a signatory, the time limit stipulated in such specific law or international convention shall prevail over that under the General Provisions.
In summary, the time limit in a subrogation claim should be:
- Under a Bill of Lading or contract for carriage by sea: 1 Year (Maritime Code)
- Under a contract for carriage of goods by air: 2 years (Montreal Convention)
- Under a contract for carriage of goods by rail: 9 months
- Under a contract for carriage of goods by road: 3 years
- Other types of subrogation claims: 3 years
Please note that the above legal position may eventually be subject to the judicial interpretation of the Chinese Supreme People’s Court after the General Provisions come into effect on 1 October 2017.
1b) Time Limit in a claim under the insurance contract
Strictly speaking, the time limit for a claim against the insurer lodged by the insured under the insurance contract should also be 3 years according to the General Provisions, but this is different from the current position under Article 26 of the Chinese Insurance Law, which provides for the 2-year time limit for a claim under the insurance contract. This issue would also be subject to the judicial interpretation of the Chinese Supreme People’s Court in due course.
1c) Application of time limit
Identical to the current legal practice in China, the General Provisions confirms that parties’ voluntary agreement on the time limit shall be null and void, e.g. waiver of the time limit, time extension. This indicates that the time limit issue is compulsory under Chinese law.
The General Provisions also provides that the People’s Court shall not actively apply the time limit in adjudicating cases, unless the time limit issue is specifically raised by a party to the legal action.
- Civil liability
Another highlight of the General Principles involves civil liability of a liable party. Article 187 provides that if a party shall assume civil liability, administrative liability and criminal liability, its assets shall be utilised to satisfy its civil liability in case of insufficient assets.
In the usual legal practice in China , a liable party’s assets would usually be frozen or confiscated to meet administrative or criminal liability first and foremost, and as a result of which, it would be much more difficult for creditors to pursue their civil claims against such party.
With this critical change, claimants (including subrogated insurers) may be in a better position to pursue their civil claims against specific liable parties and stand a better chance of making a recovery. However, we should leave this to the Chinese Supreme People’s Court as well as other administrative authorities to issue detailed regulations and guidelines to ensure Article 187 is well implemented.
The adoption of the General Provisions marks a significant step towards the codification of civil law in China and definitely constitutes a milestone in the country’s legal history. The rules lay down the overall framework for, and form the general part of a five-part Civil Code of the People’s Republic of China. Subsequent parts will be adopted in the years to come. When the five constituent parts are all passed into law, which is expected in 2020, The Chinese Civil Cod e will enter into force.