By Bill H. Zhang

On July 7, 2009, the China’s Supreme People’s Court (“Supreme Court”) enacted a Guidance Opinion on Several Issues Relating to the Trial of Civil and Commercial Contractual Disputes in the Current Economic Situations (“Guidance Opinion”), which took into effect immediately. In the Guidance Opinion, the Supreme Court has clarified and established certain new rules and principles for the trial of civil and commercial contractual disputes in the current global economic downturn. Particularly, the Guidance Opinion has clarified six important issues on (i) application of the long-debating principle of change of circumstances; (ii) adjustment of compensation amount for breach of contact; (iii) identification of attainable profit losses; (iv) evaluation of agency by estoppel; (v) determination of contract validity; and (vi) exertion of uneasy counterplea rights. These newly established rules and principles have greatly endowed the current PRC Contract Law as an effective response to the ongoing global economic slowing down, and will have significant influence on the formation and performance of contacts in China. When doing business with China, foreign investors will have to contract with their Chinese business partners; therefore, they shall carefully take this Guidance Opinion into consideration during the formation and performance of contracts in China. It is also advisable for foreign investors to acquaint themselves with these newly established rules and principles clarified by this Guidance Opinion so as to comply with it and timely adjust their contracting strategies in China.

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