Chengjie Wang is a lawyer at Allbright Law Offices (Shanghai). He specialises in dispute resolution and has provided services for large enterprises on trade finance, equity, property, and labour disputes. He holds a master’s degree in WTO law (first class honour) from Shanghai University of International Business and Economics.
The latest developments of “rebus sic stantibus” in the Civil Code of the PRC
Abstract:
Pacta Sunt Servanda (hereinafter PSS) is one of fundamental principles in contract law. Meanwhile, national legislations usually lay down exceptions to the PSS principle to terminate or alter the binding effect of a contract upon parties. Among these exceptions, rebus sic stantibus (change of circumstances) has been introduced in civil law systems as one of typical conditions to give contracting parties an opportunity to rectify or rescind the contract. Recent released Civil Code of People’s Republic of China (hereinafter CCPRC) provides a refreshed legislative structure dealing with rebus sic stantibus. Contrary to the Second Interpretation of Contract Law of PRC which has identified the exclusion of force majeure out of rebus sic stantibus , CCPRC stipulates both of these two concepts and deletes the distinct line thereof.
This paper depicts the framework of Chinese approach to embracing the PSS principle and its exceptions under the latest CCPRC. Section II discusses approaches to rebus sic stantibus taken by different jurisdictions. Section III introduces the legislative history and examines the provisions of rebus sic stantibus under the CCPRC. Particularly, it discusses the paradox of previous judicial practice in China and how the new CCPRC repairs the circuitous loophole in the old civil legislation. Section IV continues to discuss the components of rebus sic stantibus and its comparison with force majeure under the CCPRC. This part further conducts a comparative study of rebus sic stantibus among civil law jurisdictions given that the corresponding concept — frustration in common law system is quite different. Section V discusses the application of rebus sic stantibus in COVID-19 era and how to draft an effective and practical clause in contracts.