Liu Guixiang's keynote speech at the Fourth China-Singapore Legal and Judicial Roundtable

( Updated : 2021-01-07

The Interpretation and Application of the General Principles of Law in China's Judicial Practice

Keynote speech at the Fourth China-Singapore Legal and Judicial Roundtable

By LIU Guixiang, Justice, Full-time Member of the Adjudication Committee of the Supreme People's Court of China

(November 30, 2020)

Honorable Chief Justice Sundaresh Menon, honorable Chief Justice Zhou Qiang,

Dear justices, guests, ladies and gentlemen,

Good afternoon!

I am very honored to participate in the Fourth China-Singapore Legal and Judicial Roundtable and to exchange my views with you on the application and restrictions of the general principles of law in international commercial disputes. Against the background of economic globalization and trade multilateralization, China remains steadfast in opening up wider to the world. With the deepening of the Belt and Road construction, China has had more frequent international economic and trade exchanges, and international commercial disputes have increased with it. In resolving disputes, to legally and reasonably use the general principles of law to deal with the complicated international commercial relations, has great significance for protecting the legitimate rights and interests of Chinese and foreign parties on an equal basis, maintaining an equitable and fair international commercial transaction order, and creating a legal, international and convenient business environment. I would like to share my views in three aspects:

I. The interpretation and application of the general principles of law have important value and function in resolving international commercial disputes

From the perspective of international law, Article 38 of the "Statute of the International Court of Justice" stipulates that the general principles of law, international conventions and international custom are the three major sources of law. However, the specific content of the general principles of law has been controversial in academia for a long time. From the perspective of the international commercial law, cross-border commercial transactions among equal market entities have flourished with economic globalization, and commercial laws in different countries have shown convergence. The principles of autonomy of will, good faith, force majeure, change of circumstance, public order and good morals, and estoppel have been common in domestic commercial laws of most countries in the world. The general principles of law have displayed new vitality in international commercial law and played an essential role in resolving the international commercial disputes.

International conventions are the most important source of international commercial law. They are stable in form and clear in content. For example, the "United Nations Convention on Contracts for the International Sale of Goods" (hereinafter referred to as "Convention on Contracts") is currently the most successful and widely applicable in international commercial law. It has greatly promoted the uniformity and development of international laws of trade in goods. The formulation of the "Contract Law of the People's Republic of China" drew on many contents of the Convention on Contracts. However, international conventions are difficult in formulation and revision and limited in the numbers, because they need to go through strict procedures of negotiation, formulation, signing and approval among multiple parties before becoming legally effective. International custom is the unwritten rule that has been long universally recognized and habitually abided by the transaction parties in the international commercial practice. International custom is universal and flexible in application, but it has long formation process, slow updating, difficulty to prove, limited quantity and relatively solidifying, which makes it hard to follow up to the ever-changing practice of international commercial relations. The general principles of law are the best bridge between the complex and changeable international commercial relations and the clear and specific international commercial rules, which have three important values and functions:

Firstly, they can close the loopholes or fill the gaps in international commercial conventions and custom. When there are no clear rules to follow, the general principles of law can be resorted. Secondly, they can guide legal interpretation and legal reasoning. Under the general principles of law, a legal provision may be interpreted with new connotations, and they may provide an authoritative and correct starting point and foothold for legal reasoning in difficult cases. Thirdly, as the guiding principles, foundation or source of laws, the general principles of law can ensure that the formation and implementation of international commercial rules conform to the commercial legal value and purpose which are generally recognized by the international community.

II. The embodiment of the general principles of law in China's domestic laws

During the development of modern international commercial law, the general principles such as equal protection, autonomy of will, good faith and fairness (equity) have played a guiding and practical role. Although China's civil and commercial laws have not adopted the general principles of law as an independent source of law, the "Civil Code of the People's Republic of China" (hereinafter referred to as the "Civil Code") to come into force on January 1, 2021 clearly stipulates the principles of equality, free will, good faith and fairness, which means that China expressly acknowledges the general principles of law in the form of legal provisions.

Regarding the principle of equal protection, Article 4 of the Civil Code stipulates, "All civil subjects have equal legal status in civil activities." That is, the legal statuses of civil subjects are equal and their rights and interests are equally protected. Thereinto, equal protection means equal legal status of Chinese and foreign parties in litigation and equal civil remedy procedures, and that the parties shall enjoy equal protection methods and liability remedies after their civil rights are infringed.

The principle of autonomy of will is embodied in the Civil Code as the principle of free will. It requires that civil subjects may establish, alter and terminate the civil legal relations with their free will. In property rights, free will means the freedom to control and dispose of property right. In contracts, free will means the freedom of contract. In dispute resolution, free will means that the parties can reach a consensus to choose litigation, arbitration or mediation to resolve their disputes according to law, and determine the applicable law. Nevertheless, autonomy of will does not mean absolute laissez-faire. The Civil Code also stipulates the principles of no abuse of rights, law-abiding and public order and good morals, in order to restrict the improper exercise of the free will principle.

The principle of good faith is embodied in the "Civil Code" as, civil subjects shall conduct civil activities under the principle of good faith, adhere to honesty, and fulfill their promises. In making up for legal imperfections and filling the gaps of contracts, good faith has become an important principle for granting judge's discretion, overcoming the limitations of statutory law, and balancing the interests of the parties and society.

The principle of fairness is also clearly stipulated in the Civil Code. It is embodied in the Civil Code that, for a fundamental change which was unforeseeable by the parties at the time of conclusion of contract and which is not attributable to commercial risks, the systems of force majeure and change of circumstance shall be applied to balance the interests between the parties. Thereinto, the Civil Code has a total of 8 articles concerning force majeure, of which the core clauses are Article 180, Paragraph 2 and 1. Article 180 stipulates the definition of "force majeure" and its validity of exemption. Other clauses deal with the relationship between force majeure and rescission of contract, risk bearing, change of circumstance, statute of limitation, etc. In addition, the Civil Code acknowledges the principle of change of circumstance for the first time at the basic law level. Article 533, Paragraph 1 of Contract Section stipulates, "After a contract has been concluded, and the basic conditions for the contract have undergone a fundamental change which was unforeseeable by the parties at the time of conclusion and which is not attributable to commercial risks, if it is obviously unfair for one party to continue to perform the contract, the party adversely affected may renegotiate with the other party; if the negotiation fails within a reasonable period, the parties may request a people's court or an arbitration institution to modify or rescind the contract."

III. The Application and restrictions of the general principles of law in international commercial dispute resolution

Based on the abstractness and ambiguity of the general principles of law, in resolving international commercial disputes, China's courts in follow the application condition of, "Exhaust legal rules before applying legal principles" which is universally accepted by the international community. The necessary restrictions placed on the judges to apply the general principles can help maintain the legal certainty and predictability to the greatest extent. When China's courts in determine the law that regulates international commercial legal relations: first, apply the international commercial conventions that China has concluded or participated in, except for the clauses that China has declared to retain; next, apply the applicable law determined in accordance with the "Law of the Application of Law for Foreign-Related Civil Relations of the People's Republic of China"; when there is no provision in international conventions or applicable laws, the international custom shall be applied; finally, in situations where there is no provision in international conventions or applicable laws, or the provision has conflicts or ambiguities, the general principles of law shall be applied to measure the value and make judgments, explain the connotation of legal rules, and then handle individual cases fairly and reasonably.

In practice, China's courts continue to enrich the connotations and clarify the boundaries of the general principles of law during application. For example, the principle of good faith is the basis of international commercial activities and laws, and China's courts pay much attention to the value of the principle for resolving international commercial disputes. In two judicial interpretations, the "Provisions on Some Issues Concerning the Trial of Cases of Disputes over Letter of Credit" and the "Provisions on Several Issues concerning the Trial of Independent Guarantee Dispute Cases", the SPC, based on the principles of good faith and no-abuse of rights, with reference to international conventions, foreign legislations and judicial practices and experience, develops the exception system for letter of credit fraud and the exception system for letter of credit fraud exception, and the fraud exception system based on the independence principle of independent guarantees; in the meantime stipulates the conditions required for the court to make temporary stop payment orders and final stop payment judgments.

Since the beginning of this year, the COVID-19 pandemic and various prevention and control measures have made international commercial disputes arising from the inability of contract performance an urgent problem to be solved. The SPC has successively issued three "Guiding Opinions on Several Issues of Properly Hearing Civil Cases involving the COVID-19 Pandemic" (hereinafter referred to as the "Guiding Opinions") to provide specific guidelines for China's courts to try pandemic-related civil cases. The Guiding Opinions further clarify the rules for the application of force majeure, which embodies the principles of autonomy of will and the ideas of encouraging transactions and maintaining the transaction order, and minimizes the impact of the pandemic on contract performance. Besides, when applying the extraterritorial laws, the Guiding Opinions require the people's courts to accurately understand the content of statutory provisions or case law similar to force majeure rules in the foreign laws and correctly applies them. Especially in the application of the ‘Uniform Customs and Practices for Documentary Credits" and "Uniform Rules on Demand for Guarantees" by International Chamber of Commerce, people's courts shall correctly comprehend the legal implication of force majeure and apply it correctly according to the case.

To sum up, the application of the general principles of law can improve the efficiency and predictability of transnational commercial dispute resolution. With the continuous expansion of international economic and trade relations, the scope of the application of the general principles of law will become wider, and their content will be richer and more refined. China will always keep abreast of the times with an open and inclusive mind, promote the common progress of domestic and international rule of law in the interaction between domestic and international laws, and make our international commercial order more equitable and fairer!