Oxford University Comparative Law Forum
Towards a Social Value Convergence: a Comparative Study of Fundamental Principles of Contract Law in the EU and China
(2009) Oxford U Comparative L Forum 5 at ouclf.iuscomp.org
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One of the remarkable differences in contract law between legal
systems in the European Union and China is the definition and status of
contractual freedom. Historically, contractual freedom has not been
commonly recognized in China, and social ethics had played a greater
role in its civil law. In contrast, in European legal systems, freedom
have been accepted as a core element in private law, with social
elements having been commonly ignored, particularly during the time of
18th and 19th century. However, in modern times,
China has started to accept the concept of freedom in its civil law, and
the consideration of social elements has been diminished gradually
since the late 1990s. On the contrary, in Europe, mainly due to the
correction of market failures, social elements have increasingly been
considered in order to maintain the substantive justice of contract, and
contractual freedom as unfettered ideology has diminished since the
late 19th century. It could be thus reasonable to say the
modern social values between the east and west have been converging
Table of contents
With the rapid development of economic interaction between the EU and
China, private law concerning the social and economic relations between
citizens provides the basic rules which govern economic transactions,
property rights and compensation for wrongs.1 At the heart of private law are the rules governing contracts,2
which make a profound impact on business transactions based on the
assumption that "contracts are an important economic institution to
allow the exchange of goods and services, which, in turn, allows an
efficient allocation of these goods and services".3 Contract law is arguably held to be the most dynamic area of private law.4
The Chinese Uniform Contract Law (hereafter referred to as CLC),
which was drafted mainly by Chinese academic jurists between 1993 and
1999, was adopted by the National Congress of the People's Republic of
China to replace the previous three contract laws from the 1980s - the
Economic Contract Law, the Technology Contract Law and the Foreign
Economic Contract Law.5 The CLC is designed to reflect the contemporary Chinese social and economic life.6
On the one hand, it mirrors current market and globalisation
developments, and on the other it reveals the limited freedom which is
endowed in Chinese social life. The tensions between the imperatives of
state control and individual freedom are arguably mirrored in the CLC.
During recent decades, convergence in private law has brought a
new legal culture to the European society. Directives from the council
and parliament, and the case law from the European Court of Justice
serve as the legal basis for the Europeanisation of contract law. Work
undertaken by a variety of scholarly groups, including those working on
the Gandolfi Code, Trento Common Core project, Ius Commune Research School, etc., has stressed the convergence in European contract law.7
Among these scholarly outcomes, the Principles of European Contract Law
(hereafter referred to as PECL), a "product of work carried out by the
attempt to reflect the "common core of solutions to problems of
contract law" and "assist the European courts and legislatures concerned
to ensure the fruitful development of contract law on a Union-wide
basis",9 has received "a favourable reception in (at least) academic circles".10
Not only could the PECL represent the characteristics of modern
European contract laws, but it is also expected to serve as a foundation
for the future European Civil Code. Its successor, the Study Group on
the European Civil Code has adopted most of the provisions in the part
of law of obligations in the Draft Common Frame of Reference (hereafter
referred to as DCFR) which it has elaborated together with the Research
Group on Existing EC Private Law (Acquis Group).11
In this article, fundamental principles are understood as
abstractions from various contractual doctrines which guide the
explanations for the whole contract law. Not only do they represent the
essence and spirit of law, but they are also the guiding principles for
the drafting, interpretation and implementation of the law.12
Furthermore, the principles could in practice served for guiding or
informing, or even as the legal basis for the resolution of various
This article therefore attempts to examine the fundamental principles
in the CLC and the PECL in order to reveal some main features and social
value orientations of both contract laws. The core research question of
whether the underlying social values from both sides have converged
will be answered after the analysis.
1. Fundamental principles of Chinese contract law
Like many other laws, the CLC contains some certain fundamental
principles which represent the underlying policies on the basis of which
the legislation is formulated, and which influence the law throughout.14
Although the CLC transplants many terms and provisions of Western
origin, significant fundamental concepts in Western laws often carry a
different meaning in Chinese law.15 This part therefore attempts to discuss the fundamental principles in the CLC to reveal its own characteristics.
The following characterises the fundamental principles in the CLC:
- Not only do the fundamental principles guide the rules of
implementation, but they can also reflect the spirit as well as value
orientation of the contract law. They are determined by the social and
economic life, and guide all stages of a contract.
- Fundamental principles are uncertain, because they did not
refer to the concrete rights and obligations of parties, with the effect
that the contractual parties cannot predict the precise consequences
which these principles will have on their rights.
- Fundamental principles are mandatory rules. The contractual
parties cannot exclude the application of fundamental principles in
their contracts. Fundamental principles are part of mandatory statutory
law which provides legitimacy to the judgment of a court.
- Fundamental principles serve for the interpretation of law and
may apply to specific cases where the law fails to govern specific
Although the principles of equal legal status between parties, of
fairness, of respect for social ethics and morality, of obedience of law
and regulations are often regarded as fundamental of the CLC,17
some scholars hold the view that "contract law is primarily influenced
by three major principles, namely, freedom of contract, good faith and
Others such as Jiang Ping have argued that the designing of the CLC is
based on the principles of uniformity, freedom of contract, protecting
the interests of creditors and functionalism.19
Some others also believe the fundamental principles of the CLC are
equality, voluntariness, fairness, exchange of equivalent values, good
faith, and complying with the laws and policies of the state.20 By combining these viewpoints with the guiding principles21
as well as the purpose of the contract law, namely "protecting the
lawful rights and interests of the contractual parties, safeguarding
social and economic order and promoting socialist modernization",22
the author in this article believes the fundamental principles of the
CLC could be analyzed as involving voluntary contract and socio-economic
The wording of Art. 4 CLC implies that "voluntariness" is to be used rather than "freedom of contract".23
One should remember that "freedom of contract" has not been accepted in
China until recently, in spite of the fact that since the beginning of
20th century, Chinese contract theory has been derived from
Continental European and Common law system. The reasons for this
reluctance are as follows:
Firstly, freedom of contract, to a large extent, represents the
concept of "individual" or "liberty". Most scholars agree that Chinese
legal history and the spirit of modern law are influenced by
Confucianism. However, Confucianism has no room for the development of
liberty or individualism.24 Hence, it is reasonable to say Confucianism is largely averse against "freedom of contract".
Secondly, since the establishment of the People's Republic of
China in 1949, the economy has been strictly centrally planned, with the
effect that it was impossible for individuals or business entities to
have free access to the market. The economic plan and mandatory policies
were playing an essential role at that time. Accordingly, it was
impossible to recognize "freedom of contract" as a fundamental principle
under a system of centrally planned economy.
Last but not least, freedom of contract had long been criticized
in China as a capitalist concept, which any socialist system must avoid.25
In China, it was for long believed that the "ideology of individualism"
marks the main difference between capitalism and socialism. This belief
continues to influences minds even in China today. This is why the CLC
uses the notion of "voluntariness" rather than that of "freedom of
contract" in the context of contract formation, reflecting the
transformation from a centrally planned economy to a market economy, and
considering the purpose of developing a socialist market economy.
Basically, the principle of "voluntariness" contains two elements
which are: (1) the rights of contractual parties to enter into a
contract voluntarily and within the limits of law; (2) the prohibition
on others to interfere with the contract illegally. Admittedly, it is
often believed in Chinese academic circles that "voluntariness" is the
same as "freedom of contract". However, the following will reveal the
considerable differences which exist between these two notions.
First of all, as concerns the content, "freedom of contract"
recognizes the autonomy of individuals to enter into a binding
agreement, to choose the other contracting party, to determine the terms
and contents of the agreement, to modify or terminate the contract by
mutual consent, and to choose the form of a contract.26 By contrast, "voluntariness" is much narrower and essentially limited to the autonomy to enter into a contract.27
And while "freedom of contract" governs every stage of the contracting
process, "voluntariness" relates only to the initial stage of contract
formation, giving parties a narrower power to determine their affairs
Secondly, as concerns the essence, some scholars have argued that
"freedom of contract" focuses on maximum economic efficiency, promotes
the parties' ability to exercise their full creative potential, and
establishes appropriate business relationships that possess all the
specific nuances required in such a relationship.28 "Voluntariness", by contrast, is subject to government intervention.29
Lastly, as concerns the background, "freedom of contract" was
historically derived from the consensus contract in Roman law, and
became the cornerstone of modern contract law after the French civil
Code was adopted in 1804.30
It represents the essence of a market economy, while "voluntariness",
which has been derived from the General Principles of the Civil Law of
the People's Republic of China (hereafter referred to as GPCL) in 198631, reflects the planned economy or the transition from the planned economy to the market economy.32
It is interesting to note that when the redrafting process for
contract law began in 1993, an intensive debate arose over whether
freedom of contract should be incorporated as a general principle. Some
scholars held the view that, although the ideology had been rapidly
developed during the time of classical contract law and in the 20th
century, many states have strengthened their intervention in contracts,
with the effect that this principle has gradually declined. So in
Chinese contract law, the incorporation of necessary limitations to the
contractual freedom must be included in order to maintain the public
interest and to protect the weaker parties.33
This viewpoint, however, was criticized by most of the scholars who
insisted that although many developed nations have indeed strengthened
the intervention in the contracts, the principle of freedom of contract
still remains as fundamental. Considering the long Chinese history of
intense centralized planning, the elimination of autonomy and intensive
interference from the government in private law matters, an expansion of
contractual freedom rather than further restrictions are what is needed
by the markets.34
So in the first drafting proposal in January 1995, freedom of contract
was stated as a general principle, namely that "the parties shall have
the freedom of contract within the boundary of law and no unit,
organization, or individual shall unlawfully interfere with".35
This provision, however, was revised into "the parties shall have the
right equally and voluntarily to make contract according to law. None of
the parties shall impose its own will on the other and no unit or
individual shall unlawfully interfere with the parties' right" on May
Later on August 20, 1998, the provision was changed again as "a party
is entitled to enter into a contract voluntarily under the law, and no
entity or individual may unlawfully interfere with such right", which
was adopted in 1999.37
The history of this drafting process reveals that although
"voluntariness" replaced contractual freedom, the basic notion of
freedom of contract has been widely accepted amongst academics. The
concept of "voluntariness" embodies the core essence of freedom of
contract, which endows the contractual party with the autonomy and
freedom to decide on the transactions they entered into, and contributes
to bring about efficient allocation of social and economic resources.
However, due to the influence of Confucianism and a history of centrally
planned economy, it is necessary for the state to exercise the
intervention measures to ensure that contracts are sufficiently fair and
equal, and also that the parties' interests are not detrimental to the
welfare of the state and society. Therefore, the CLC also imposes
limitations on freedom of contract to prevent its abuses and for the
state to regulate the economy as well as to maintain public order.38
1.2 Socio-economic valuation
"Socio-economic" literally means involving social and economic
factors. It is frequently used for areas of law which are closely
connected to social issues, such as labour law. The present article use
it to describe Chinese contract law. It has been demonstrated above that
the CLC reveals strong Chinese characteristics, even though it
transplants numerous concepts and provisions from western norms and
international treaties. As law is generally embedded in culture,
contract law reflects the social life of a particular people. In the
case of Chinese contract law, the present author believes that certain
characteristics have evolved from traditional social ethics and from the
current economic situation. In the following part, several fundamental
principles in the CLC which are the result of such a socio-economic
valuation will be analyzed.
1.2.1 Traditional social ethics
When performing obligations and rights under a contract, parties
must adhere to the generally accepted moral, social and commercial
standards. "Confucianism made a practical importance to the Chinese
traditional ethics, for twenty-five centuries it has been the life and
spirit of the dragon kingdom".39
Even nowadays, Confucianism deeply influences the moral and social
ethics of society. This part therefore attempts to analyze the
principles of fairness, good faith and public interests from the roots
The principle of fairness requires equality in the value of the
respective obligations between the contractual parties and
reasonableness in allocation of risks, of which the function is
primarily to prevent the stronger party from abusing its bargaining
power and from imposing unconscionable terms on the weaker party. The
fairness has its root in the idea that "the relation between the
contractual parties shall be maintained to the extent that the rights
and obligations are reasonably and justly allocated and shared",40 which, according to the opinion of the author, is consistent with the concept of righteousness (yi) of Confucianism. From some current arguments, the Confucian idea of righteousness (yi) is similar to the notion of "justice" in the west.41 As pointed out by John Rawls, justice is the same as fairness,42 and it is reasonable to say that the concept of righteousness (yi) in Confucianism, to some extent, also bears resemblance to the western notion of "fairness". In Confucianism, righteousness (yi) focuses principally on what is right or fitting which depends on the reasonable judgment. 43 It may be construed as "reasoned judgment concerning the right thing to do in particular exigencies",44
or be construed as "the oughtness of a situation which focuses mainly
on the right act as appropriate to the particular situation that a moral
agent confronts".45 But nevertheless, the virtue of righteousness (yi)
constitutes the fundamental principle of morality, as it forms the
necessary component to a virtuous life and "restrains the inclinations
towards material goods and desires of pleasure and comfort".46
Righteousness (yi) is a guiding principle for all human relations47 and it is always trying to achieve a situation in which both sides are satisfied.48 Under the influence of righteousness (yi)
in Confucianism, both the GPCL and the CLC have placed the concept of
"fairness" as a fundamental principle. As stated in the GPCL, "fairness
and making equal compensation should be obeyed".49
And the CLC requires the contractual parties to "abide the principle of
fairness in defining the rights and obligations of each party".50
In general, fairness mainly concerns the contents of contract. It
is purposed to achieve a balance in the rights and obligations between
and its function plays an essential role in Chinese contract law. The
essence of fairness is to realize the "social justice" in the society,
which is the spirit of the CLC. It is even reasonable to say the
achievement of "social justice" is the animating force of Chinese law.52
Since the notion of "fairness" is difficult to define, it has
been left to the courts to apply on a case by case basis. In judicial
practices, two rules are commonly used for determining whether
"fairness" has been achieved. The first is the "fair distribution of
rights and obligation" rule,53
under which a party is required to afford the other party rights which
are proportionate to the rights which this party has or claims to have
under the contract. The issue concerning the remedies for invalid
contracts, for instance, requires the party at fault to indemnify the
other for its final loss sustained. If both parties are at fault, then
both have to afford their liabilities respectively.54 The other rule is "reasonable and just allocation of risk".55
In business transactions, there are many unpredictable risks which can
materialize at any time. The principle of "fairness" requires the
contractual parties to share the risks equally and justly. Taking the
case of "force majeure", for instance, both parties have to share the
risks and damages fairly and justly accordingly to the circumstances and
performance of both parties.56
There is therefore no doubt to say "fairness" is a fundamental principle in the CLC which origins from the righteousness (yi) of Confucianism.
B. Good faith
There is an express provision in the CLC which requires the
parties to "conduct themselves honorably, to perform their duties in a
responsible way, to avoid abusing their rights, to follow the law and
common business practice".57 The principle, according to the opinion of the author, is rooted in the concept of benevolence (ren), the most primary virtue of Confucianism. Ren could also be construed as goodness or faithfulness.58 The golden rule from Confucius could be used to explain the essential meaning of Benevolence (ren) which is "Do not do to others what you do not want them to do to you (ji suo bu yu, wu shi yu ren)".
It is believed that "Confucius is nothing more or less than the
way that he as a particular person chose to live his life", of which the
goal is to "achieve the harmony and enjoyment for oneself and others
through acting appropriately in those roles and relationships that
constitute one".59 In order to achieve this harmony, the concept of benevolence (ren)
plays an important role. Not only does it recognize the personal
character as a consequence of cultivating one's relationships with
others, but it is also fostered to deepen the relationship which takes
on the responsibility and obligations of communal living and life.60 Based on the essential concept, man who achieves the standards of gentleman (junzi61),
which consists of trustworthiness and credibility as well as
reliability, is considered to be the ideal sage. Confucius expected that
all the human virtues - filial piety, fraternal love, loyalty and
truthfulness - would be obtained to achieve the appropriate
relationships between persons.62
Benevolence (ren) is not only rooted in everyday
conduct, but also is an essential moral obligation for the commercial
business in China. The standard is applied in particular cases depending
primarily on the nature of the contract and other surrounding
circumstances. By tracing the principle of good faith, the GPCL
recognized this traditional morality and business ethics in 1986 to
require "honesty and credibility should be observed in the civil
which has been succeeded by the provision in the CLC whereby "the
parties shall abide by the principle of good faith in prescribing their
rights and obligations".64
However, similar to fairness, good faith has not been defined in
the CLC either. It is most commonly construed as honesty and
trustworthiness. Three functions of the principle of good faith in the
CLC could be distinguished:
First of all, it is a basic principle to balance the interests
between the parties, and between the parties and society. As pointed out
above, benevolence (ren) aims to harmonize the relationships
between persons, and advocates people to be honest and responsible to
the others. So in the CLC, the doctrines of pre-contractual liability,
ancillary duties and post-contractual liability are incorporated,65 which require the parties to obey the principle in every stage of the contract.
Secondly, the principle of good faith requires the parties to
keep their words. As advocated by Confucianism, benevolence or
faithfulness (ren) which is matching one's words with one's deeds, and failure to deliver on a promise is thus a failure of morality.66
The CLC therefore requires the parties to abide by contract. Even if
the contract is deficient in some way, the contractual parties still
have to endeavor to cure the defects and try their utmost to perform
Lastly, while tremendous social and economic changes are
occurring in China, many laws and regulations are not suitable to the
current economic situations. The principle of good faith, however, could
fill the legal vacuum and help to interpret contracts and laws to
achieve the necessary balance of interests between the parties.68
In many civil law countries, the principle of good faith has
since the 1970ies been considered as the highest guiding principle for
the law of obligations. In China, it is also a significant important
principle both because of the traditional ethics and current economic
situations. Some scholars even illustrate good faith in the CLC into
more detailed aspects as follows:69
- Before a contract is concluded, especially during the
negotiations for an agreement, the parties have a duty to treat each
other, and to cooperate to make the contract, in a good and faithful
- After concluding the contract, the parties should take all the
necessary steps to prepare and cooperate for the performance of
- While the contract is being performed, parties should assist each other and faithfully notify each other of relevant events.
- After the contract has been performed, the parties have under
an obligation to keep confidential the business secrets which they have
obtained from each other during the contract period.
- When a dispute arises which is related to the contract terms,
the parties must interpret them in a truly fair and reasonable way which
respects the mutual benefits.
It is worth mentioning that in the first draft of the CLC,
two additional provisions served to confirm and respect for the status
of good faith, namely: 1. the principle of good faith could be relied on
directly in a judgment when there was a vacuum in the law or the
application of a particular provision would be detrimental to social
2. the lower courts must refer the case to the Supreme Court for a
preliminary ruling, as approval from the Supreme Court is required if
the lower courts resort directly to the principle of good faith.71
Eventually, however, these two provisions were deleted. It was feared
that they would give too much discretionary power to judges in a context
of problematic judicial independence and might even encourage judicial
corruption. Nevertheless, this background reflects that the principle of
good faith has been widely respected in the CLC.
C. Public interest
In most legal systems, public interest is just considered to be a
limitation to the contractual parties' freedom. In the CLC, however, it
is a fundamental principle to realize the interests of the state and
society. In western legal systems, the boundary of public interest is
always defined in a narrow way in order to respect the will and freedom
of the parties, whilst in China the definition of public interest should
be construed in a broad way to reflect the idea that the socio-economic
order and state mandatory planning as well as the state policy are
vehicles formaintaining and realizing the interests of the state.
Public interest is always used together with the concept of
social ethics. The term of "social public interest" has been adopted in
both the GPCL and the CLC. Generally, it is understood to include the
concept of social morals and public order. A civil conduct72
shall be invalid if violating the public interest. Some scholars would
see all of the following as violating the social public order: (a)
damage to national interests, (b) hampering family relations, (c)
violation of sexual morals, (d) violation or infringement of human
rights or human dignity, (e) restriction of economic or business
activities, (f) violation of fair competition, (g) illegal gambling, (h)
infringement of consumer interests, (i) violation of labour protection,
(j) seeking usurious profits.73
According to the traditional culture, obedience to the public interest
is a kind of morality to citizens. "Familial loyalty, ancestor worship,
respect for elders and the family as a fundamental basis for an ideal
government" are the core principles advocated by Confucius.74
In the family, the father has absolutely power over his wife and
children. Being respectful towards elders is seen as good morality which
promotes a harmonious family relationship. The family, rather than the
individual, is regarded as the most basic and fundamental unit of
Confucianism advocated that we are living in the web of a big family -
the state. In this big family, we have to be loyal to each other, which
means that citizens should obey the ruler, and individual interests must
bow towards state interests. The three cardinal principles advocated by
Confucianism, which should be observed in order to maintain the
stability of the country, are: "ruler over subject, father over son and
husband over wife".76
Under the influence, it is acceptable that in Chinese contract law,
public interest is prior to the individual interests, and it is also
understandable that policy and state mandatory plan as well as the
socio-economic order are essential vehicles to limit the individuals'
freedom to maintain and realize the public interest.
Since the establishment of the Republic of China in 1949 until
1980s, policy rather than law has been essential for maintaining the
order and interests of the state. Even nowadays, it is reasonable to say
that policy plays a significant role in society. However, it is unclear
if there was any difference between state policy and party policy in
Chinese law. In the words of Wang Hanbin, vice-chairman of the standing
committee of National People's Congress, the role of law in China is to
establish "a legal system with Chinese characteristics".77 It is also argued by some scholars that the policy of the Chinese Communist Party could dominate these Chinese characteristics.78
The economic policies of the Chinese Communist Party, which include but
are not limited to the socio-economic order and state mandatory plans,
are mainly designed to accommodate the situation for the interests of
the state or for the majority of its citizens.
It is generally accepted that policy is a supplementary source of
law. In current China with its dramatic changes of the social and
economic situation, policy can react flexible to these changes and can
thus be a useful tool for the government to take measures in an area
where the law is unclear.79
However, two aspects make this use of policy somewhat problematic. The
first is that policy is difficult to predict, so that it can make
Parties will require certain rules in order to predict their risks and
interests before concluding the contract. And more unpredicted and
uncertain elements would be caused by the policy to the consequences of
civil conduct. The second aspect concerns transparency. Generally
speaking, most governmental policies in China take the form of internal
documents, or are contained in speeches of political leaders. Sometimes,
they are not openly accessible to the public.81
Nevertheless, in practice, these policies would be considered by the
judges, and sometimes treated as ranking above the law. Even after the
adoption of the GPCL, the People's Court frequently applied government
policy to civil laws.82
The requirement of observing the public interest was incorporated
into the GPCL in 1986. Article 6 GPCL required that civil activities
must be in compliance with state policies, and Article 7 stipulated that
civil activities must respect social ethics and must not harm the
public interest, undermine state economic plans or disrupt the
socio-economic order. One could, of course, argue that these provisions
are simply the consequence of the centrally planned economy in 1980s.
But the CLC was designed in the late last century. It attempts to
reflect social life and economic changes at the turn of the 21st
century, in particular China' change towards a market economy. And yet,
several provisions still serve to strengthen the status of public
interests. For example, Article 7 CLC requires parties to abide by
administrative regulations as well as social ethics, and not to not
disrupt the socio-economic order or harm public interests. One can
therefore say that the domination of the state over private autonomy is
mainly resulted from the traditional ethics, and Confucianism still
dominates modern Chinese society and social life.
It is interesting to note that the role of Administration of
Industry and Commerce (hereinafter called AIC) was debated during the
drafting of the CLC. In the previous three contract laws in 1980s, the
AIC had a broad power to supervise that contracts were not detrimental
to the public interest. They could even invalidate a contract which they
believed to be harmful to the state or society. But with the
development of the rule of law, some scholars argued that the power of
administration should be curbed, and that only courts should be allowed
to declare a contract void. So the drafting committee decided to give no
such power to the administration. However, the AIC argued as follows in
favour of it retaining the power to supervise contracts:83
- Chinese state-owned enterprises frequently failed to take
responsible care of state assets, causing enormous losses in recent
years. Their business operation should be supervised for the protection
of state assets.
- Chinese enterprises are often poorly managed. Their lack of
self-discipline and self-protection often causes unnecessary losses,
which requires the AIC to supervise.
- The courts do not have sufficient resources to deal with all
the problems, and judicial remedies do not compensate for loss of state
Therefore, Article 127 CLC eventually stipulated that the
"AIC shall be responsible for monitoring and dealing with any illegal
act which harms to the state interests and public interest in accordance
with the laws and regulations." However, this provision is too vague.
While it endows the AIC with the right to supervise contracts, it fails
to spell out in which way and in which areas the AIC can supervise
contracts. This lacuna remains to be closed.
1.2.2 Current economic situation
Modern Chinese contract law is not only influenced by
Confucianism, but also inspired by the current economic situation. China
has opened its doors to the world and is willing to integrate into an
international market. In consequence, some concepts and provisions have
to be transplanted from other legal systems in order to diminish the
obstacles for the cross-border transactions. There can be no doubt that
the CLC is also influenced by this current economic situation. The
following will attempt to analyze two fundamental principles of the CLC
which result from the current economic situation, namely equality and
promotion of business transactions.
Inequality between certain groups of persons was advocated by
Confucianism, such as father having absolutely power over his wife and
children, the emperor having absolute power over his citizens. Women
should respect men, younger persons should respect elders, and only the
oldest son would succeed to the authority of the family, etc. These
strict hierarchy and descent-lines are part of morality (Li),
which was consistent with the needs of a ruler in a feudal state. So, to
some extent, this is the reason why Confucianism has been the official
philosophical thought and teaching since the Han Dynasty (206BC
-220AD). Under the priority of this philosophy and public interests, it
was really difficult for a private company during the 1980ies to be
treated equally with a state owned enterprise. It is particularly true
that the government has a clear preference to protect the state-owned
enterprises because their interests were directly involved. Due to the
fact that judicial power is not independent in China, it is
understandable why equality was not respected in the previous contract
laws and practice in the 1980ies.
However, with the development of the economy and with China
knocking on the door of the World Trade Organisation, all parties that
are willing to enter into the contract are to be treated equally. It is
true to say that the market calls for equality between the contractual
parties. The principle of equality has therefore been incorporated into
the CLC as a fundamental principle. It includes three aspects:84
The first is equal capacity. In the previous economic contract
law, only legal persons had the right to conclude what was referred to
as the "economic contract", a contract which is established for economic
purposes. But in fact, all parties in a market require the same
capacity to contract and it is reasonable for them who were involved to
have an economic purpose. So the CLC endowed all the parties, including
natural persons, legal persons, and other organizations with the same
capacity to enter into a contract.85
The second is equal legal standing. All the parties are required
to negotiate and conclude the contract voluntarily. But in practice,
many large scaled companies or monopolies could conclude contracts
without negotiation with other parties or could use their superior
bargaining position for concluding unequal contracts. This was
frequently observed for consumer contracts. So in order to maintain the
equal legal standings of all parties and to ensure that contracts are
based on true consent and manifest mutual benefits, the CLC provides
that a party to a contract can require the court or arbitration tribunal
to amend or rescind the contract if it was apparently unreasonable at
the time of concluding.86 The party who supplied the standard terms has to be given more responsibility to inform about the contract.87
The last requirement is equal treatment. As stated above, in the
past, private companies were treated differently from state-owned
companies, both during formation of the contract was concluded and after
disputes arose. The principle of equality requires not only equal legal
status of the parties before a contract is made, but also equal
treatment once disputes arise after the conclusion of a contract. In
current China with its remaining socialist orientation, there are still
many state-owned companies. If courts or arbitration tribunals treat
state-owned companies better in the adjudication of disputes, parties
would be very reluctant to enter into contracts with state-owned
companies, which in turn would be harmful to the economy development. So
the courts or arbitration tribunals are required to treat all the
parties equally without considering the owner and status.
Therefore, equality, an underlying principle in the CLC, is
required at every stage of the contract from the negotiation to disputes
resolution. It serves as a logical premise which reflects the notion of
autonomy and freedom that contractual parties in a free market could
compete and co-operate on an equal footing.88
B. Promoting business transactions
Like many other countries at the time, ancient China implemented a
policy of "emphasize agriculture while restraining commerce", a policy
which is rooted in the legal culture. When the central planning of
economy introduced after the establishment of the People's Republic of
China in 1949 was gradually replaced and the CLC drafted, most members
of the drafting committee argued that contract law should set out the
fundamental legal rules which govern market transactions. It was
believed that the promotion of business transactions had been ignored in
China for such a long time that it should be incorporated in the new
unified contract law in order to accelerate economic development.89
According to some scholars, there are three aims for the promotion of business transactions in the CLC.90
The first is to promote the development of a market economy, under
which "contractual relationships constitute the most basic legal
relationships" and "a fundamental objective of contract law must be to
foster and encourage the transactions".91
The second is that the promotion of business transactions
contributes to increased efficiency and social wealth. "This is not only
because different entities and individuals can satisfy their needs for
different goods or services and their desire to increase their wealth
only through the transactions, but also because only through
freely-negotiated transactions can resources be distributed optimally
and utilized most efficiency".92 In most societies, the market serves as the principal mechanism for the production and distribution of wealth,93
and contract law is to facilitate efficient exchange and repair market
failures. The CLC thus attempts to contribute to the creation of social
wealth,94 by promoting efficient transactions.
The last aim is to protect the freedom of contract. Promoting
business transactions is consistent with the wills of the parties, and
it encourages people to negotiate freely for the contract according to
their wills. So most scholars advocated that the principle of promoting
business transactions should be incorporated into the CLC.
Promoting business transactions is also a guiding principle for
drafting. It has found its way into the CLC in at least the following
- Formation of contract. Previous contract laws operated
without the notions of offer and acceptance. The CLC, however, adopts
offer and acceptance as elements of contract formation under the
principle of promoting business transaction, on the ground that they
make business transactions more convenient and efficiency. Previous
contract laws used chiefly formal elements, such as signatures, for
establishing a contract. In contrast, the CLC allows contracts to be
established by conduct, namely performance.
- Invalid contracts. In the GPCL, seven situations can invalidate civil activities.95
Their scope was too wide. Invalidity was used for contract termination
to a degree which was harmful to the economic development. This was
remedied in the CLC. For some of the situations in which the GPCL
envisaged invalidity, the CLC provides that certain terms are amended or
the contract rescinded instead of invalidated, if the contract was
entered into by fraud or duress, or by taking advantage of the other
It is interesting to note that the CLC also distinguishes between
"invalid contracts" and "contracts with pending validity". For instance,
a contract concluded by an agent without any authority, or who exceeded
his authority, or whose authority had lapsed, would be valid after the
ratification by the principal.97
- Interpretation of contract. Previous contract laws lacked rules
on interpretation. In practice, contracts were generally held to be
invalid when their content was too vague. The CLC adopts a rule of
interpretation which allows such contracts to stand, thus making
business transactions more predictable and certain.98
It is worth mentioning that business transactions must be legal and
must not be harmful to public interests. The CLC encourages only lawful
transactions, which means that the transactions must be voluntary,
within the law and regulations, and must reflect the true intentions of
2. Fundamental principles of PECL and DCFR
In recent years, private law Europeanisation has been an intensively discussed topic.99
The words "unification", "harmonization" and "convergence" have often
been used to distinguish various levels of Europeanisation. While the
concept of "unification" indicates a complete integration of legal
concepts and rules as well as cultures, the word "convergence" reveals a
more natural way for the integration compared with the term
"harmonization", which suggests a more active process through the
unification.100 The present author therefore prefers to speak of "convergence" rather than "harmonization" or "unification".
In the process of private law Europeanisation, the European Union
has made use of treaties, regulations, directives and recommendations.101
The case law from the European Court of Justice, the academic debate as
well as educational projects have also contributed to the process of
convergence. Amongst the available instruments, directives in particular
have served to achieve a substantial level of integration among the
laws of member states, especially in the area of consumer law. Some
observers believe that such regulation has contributed to the smooth
operation of the internal market, having removed many obstacles to free
movement of person, good, service and capital which resulted from
differences between national laws.102
However, there is ample evidence within the academic debate and
political actions by the EU to demonstrate that the present EC contract
law rules, which form part of the acquis communautaire, are not satisfactory.103 This is mainly due to the following reasons:
Firstly, European legislation has, even when seen over the last
decades, only touched a very small area of the huge ocean of private
law. Most of the directives, for instance, concerning various individual
aspects of consumer protection.104
But for a true Europeanisation of private law, a higher degree of
general principles and a broader scope of areas would have to converge.
It is worth noting that when Europeans speak of "private law", they
mostly mean the law of obligations, and sometimes include family law,
other consumer law, labour law etc. 105 But it is undeniable that contract law is an essential and significant part of any such convergence.
Secondly, the legal instruments adopted by the European Union are
not without flaws. The directives are often non-consistent and
sometimes hinder rather than promote convergence. 106
Norms used in the directives are often rather vague, and notions
employed by one directive cannot be transferred to others. Taking the
notion of "damage", for example, the European Court of Justice held that
the definition in the Package Travel Directive cannot be applied to the
Product Liability Directive, with the result that different definitions
of "damage" operate for different sectors of law.107
Furthermore, directives frequently adopt no more than a minimum level
of protection of weaker parties, leaving intact higher levels of
protection in many member states, and a corresponding diversity between
the domestic laws.
Thirdly, problems arising from the enforcement of the instruments
cause as problems to the process of convergence. It is generally
accepted that transposition is needed for implementation.108
However, national courts often find it difficult to apply the abstract
notion adopted in the directives to given cases. For example, the notion
of "good faith" which is employed i.a. by the Unfair Terms Directive
will be more difficult to apply by lawyers from legal systems based on
common law,109 which can impair the effect of directives.
Therefore, although what has been done over the last decades has
indeed promoted the Europeanisation of private law, a higher level of
contract law convergence is still required for persons, goods, services
and capital to move freely within the European Union.
Several working groups and international model laws have
contributed to the process of Europeanisation of private law. The UN
Convention for the International Sale of Goods (CISG) in particular has
to some extent inspired the work on PECL.110
However, PECL is more concerned with presenting the common core of
contract law in Europe, while the CISG seeks to establish common rules
for sales contracts at the international level.
The work on PECL began in 1982, when an independent body of
experts, the "Commission on European Contract Law" headed by Professor
Ole Lando and comprising 20-25 members from all the EU member states,
started to work on a European contract law.111
The members mostly consisted of academics and the odd practicing
lawyer. They were not selected by any government and did not represent
their countries officially. In 1995 Part One of PECL, dealing with
performance, non-performance and remedies, was published. Subsequently
Parts One and Two, which cover the core rules of contract, formation,
authority of agents, validity, interpretation, contents, performance,
non-performance and remedies were published in 1999, followed by Part
Three in 2003, which covers plurality of parties, assignment of claims,
substitution of new debt, transfer of contract, set-off, prescription,
illegality, conditions and capitalization of interest.112
Mention should also be made of the work of Professor Gandolfi on his Code of Contract Law. 113
In contrast to PECL, the Gandolfi Code was drafted by a single person,
and the drafting language was French rather than English.114
The Study Group on a European Civil Code, a network of academic lawyers headed by Professor von Bar),115
has made an enormous contribution to this convergence with their
"Principles of European Law", which, on the basis of PECL, extend to the
entire law of obligations and some aspects of property law.
Mention has been made above of the Research Group on the Existing
EC Private Law (Acquis Group), whose Acquis Principles restate the
existing contract law as currently found in EC directives and
regulations, and judgments of the European Court of Justice. Study Group
and Acquis Group have jointly produced the recently published Draft
Common Frame of Reference of European Private Law, which also goes well
beyond the area covered by PECL and include specific contracts, torts,
unjust enrichment, negotiorum gestio and securities in movable property.116
The PECL and the DCFR can serve various needs:117
Firstly, economic needs. The core essence of private law
Europeanisation in fact is for the ideal of "a single market". A
converging contract law can encourage market transactions, whereas
differences in contract law structure and terminology, fundamental
concepts, classifications, and legal policies can be seen as inimical to
the efficient functioning of a single market. Standard contracts can
exemplify the issue of European private law convergence. Different
member states have adopted different levels of control of standard terms
based on different notions of protection against unfair terms. A
business which wishes to operate across the European Union must draft
standard contracts in many versions, which raises costs considerably.
Contract law convergence could overcome these obstacles and contribute
to a smooth functioning of the single market. EC legislation in the area
of contract law has gone some way to removing obstacles from the free
movement of persons, goods and services by way of convergance of
Secondly, political needs. Since 1989, the European Parliament has twice118
taken the initiative to begin work on a European civil code. Under the
Dutch presidency of EU, in 1997 a conference on a European Civil Code
was held in Scheveningen in the Netherlands. Although the conference did
not advocated the drafting of a European Code to bind all the member
states, it was at this meeting that Christian von Bar began to set up
the Study Group for a European Civil Code.119
In 1999 the Tampere European Council called for an overall study on the
need to approximate member state's legislation in civil matters in
order to eliminate obstacles to the smooth functioning of civil
proceedings.120 Later, on July 11, 2001 the Commission published a communication121
to Council and Parliament to request responses from academic and
practising, lawyers, legislators, stakeholders, etc., to investigate
whether the diversity of contract law caused a problem for business
transactions and how to prepare for the legislation. Four options were
presented in the communication: 1. no community action, leaving the
problem to the market; 2. the development of non-binding principles of
European contract law; 3. improvement and consolidation of the existing
private law; 4. wide-ranging legislative actions.122
During 2001 and 2002 the Commission received about 180 responses from
both academics and practitioners. The Commission responded to these
contributions in February 2003 with its Action Plan123
and reaffirmed partly in the 2004 Follow-Up Communication. According to
the Action Plan, the following three strategies are highly desirable:
to improve the coherence and consistence of the EC acquis in the field of contract law,124 to promote the elaboration of the EU-wide standard contract terms,125 and further reflection on the need and value of a horizontal optional instrument respectively.126
The publication of PECL between 1995 and 2003 should be seen in this
context; the DCFR, which was handed over to the European Union and the
general public at the end of 2008, is intended to serve as draft for a
Common Frame of Reference to be adopted by the European legislator.
Thirdly, judicial needs. Not only the legal systems as such, but
also methods of law finding and terminology differ greatly among the EU
member states. In order to prepare a European civil code, it is
necessary to have a common language for the future discussion. PECL
provides some common principles and terminologies and can serve as a
basis for future convergence. Most parts of the PECL have, with some
modifications, found their way into the DCFR.
It is therefore reasonable to say the PECL and DCFR are the
foundation of European contract law harmonization, and indicate the
common core of contract laws in Europe. There are several
characteristics for the fundamental principles in PECL and DCFR:
- They are shared by most of the legal systems of Europe and are evidenced in most of the European national contract laws.
- Fundamental principles are the leading rules of PECL and DCFR.
They are used to guide the drafting and interpretation of all the
provisions of contract law.
- They are mandatory rules which cannot be excluded by the parties in their contract.
- PECL and DCFR reflect modern contract law. Their fundamental
principles reveal some features of modern contract law and manifest the
valuation of modern society.
- Fundamental principles are required in all stages of a
contract. They are required in the formation, performance, the exercise
of the rights of the parties, and the enforcement of their duties.
The general, binding principles of PECL include freedom of contract,
good faith and fair dealing, duty to co-operate, duty of care, as well
However, the duty to co-operate and the duty of care, in the opinion of
the author, are the more specific reflections of good faith and fair
dealing, which means they just make the principles of good faith and
fair dealing more concrete. The same can be said for reasonableness,
namely that it is also a concrete expression of fair dealing. This part
therefore attempts to describe the three fundamental principles
evidenced in PECL and DCFR, which are freedom of contract, good faith,
and fair dealing.
2.1 Freedom of contract
Like most national legal systems in Europe, PECL acknowledges the
right of both legal and natural persons to decide with whom they will
make contracts and to determine their contents.128
The idea of freedom reveals that individuals should be given the choice
whether to enter into the contract, and implies that individuals can
also choose freely the provisions of their contract.129
"It sees in the general license to enter binding contracts an
enhancement of freedom since this facility permits the new forms of
co-operative endeavors which last over a period of time".130
There are two concepts which are closely connected with
contractual freedom, the first of which implies that the contract is
based on mutual assent.131
However, it does not mean the parties have indeed agreed in their
innermost minds, or that they really agreed at all or at least intended
to agree. Mutual assent is measured only by the words and other conduct
of the parties, which could lead a reasonable person to assume they have
agreed. This is a kind of objective test. The second concept manifests
and is the result of the idea of free choice, which should not be
intervened in by the government or other external interference.132
Freedom of contract is rooted in the will theory of classical
contract law from the eighteenth and nineteenth centuries. Since the
establishment of classical contract law, the essential purpose of the
law of contract has become the one that focused upon the free choices of
Freedom of contract, which is the essence of the will theory, attracted
both civil and common lawyers in the nineteenth century.134
Before this time, lawyers focused on the discussion of contract law in
terms of promise rather than the consensus and wills of the contract.
Only around 1800 did lawyers and judges begin to focus on the will or
consensus of the contracting parties. As express by Morton J. Horwitz,
"modern contract law is fundamentally a creature of the nineteenth
As reflected in the theory, contracts are entered into by the
will or consent of the parties. Their contractual liability stems from
their meeting of minds. The commitments are enforceable because of the
"will" of the promisor to choose to be bound by his commitment, and he
cannot complain about force being used against him as he "intended that
such force could be used when [he] made the commitment".136
It is pervasive to say that freedom of contract as a fundamental principle in contract law had been rapidly developed in the 19th
century and reached its highest level in the 1870s. In modern accounts
of contract law, we still cannot ignore that the foundation of
traditional concepts of contract law was based on the idea of
facilitating free choice. It is an essential tool to understand the
market relations and legitimating legal decisions. Some scholars have
argued that modern private law convergence could be regarded to serve
two reasons: one is to the functioning of integrated market while the
other is to construct a European citizen.137
For the second reason, the private law Europeanisation, which is to
establish what the relation between the individuals in Europe, should be
mainly concerning the definition of contractual freedom and its
PECL subscribes to freedom of contract, as is evidenced in
Article 1:102, whereby parties are free to enter into contracts and to
determine their contents. It is one of the cardinal principles of PECL.
Not only was it a convenient way to understand the economic virtues of
the free market system as the contract law governs the rules for the
exchange of wealth produced and allocated by the market, but it also
manifests the legitimacy of state in that the power of the state is
limited in order to maximise, respecting and even enforce the liberty of
citizens. Traditionally, the vague notions of "public policy" or "good
morals" have been used as limitations to party autonomy. But the
importance and value as well as standards employed are rather vague and
uninformative.139 Since the 20th
century, when protection of weaker parties and of fundamental rights
began to play a greater role, various limitation have been imposed on
that freedom. While PECL acknowledges freedom of contract, it also
states that the freedom is restricted by the requirements of good faith
and fair dealing, and also by mandatory rules, which include national,
supranational and international rules.140
The notion of freedom of contract is, however, also closely associated with the development of a single free market.141
It encourages the free choice of contractual parties which undoubtedly
accelerates the development of a single market to make it possible for
the citizens and undertakings to engage in the economic and other
activities throughout the European Union under the same conditions. In
the past several decades, the establishment of a single market has been
considered as a political issue for the EU countries. One could even say
that all EU legislation serves to promote and maintain an efficient and
competitive single market. While contract law is rather a complex
regulatory code designed to channel, encourage and shape the market
transactions, the work of European contract law convergence serves and
provides for the development of a single market.
The DCFR adopts the same approach as PECL and recognizes freedom
of contract as a fundamental principle of contract law. As stated in the
Introduction to the DCFR, "as a rule, natural and legal persons should
be free to decide whether or not to contract and with whom to contract.
They should also be free to agree on the terms of their contract. This
basic idea is recognized in the DCFR."142
However, in modern contract law, the meaning of "freedom" has
changed somewhat when compared to that prevailing at the time of
classical contract law. Nowadays, social elements have been widely
included in order to maintain justice within a society, for instance, to
protect the consumers in the contract, to protect small and
medium-sized enterprises (SMEs) etc. The notion of social justice
therefore is understood as a significant element which limits
Finally, when compared with the CLC, contractual parties are
endowed with more freedom in PECL, which is revealed by the principle of
freedom of contract. The CLC, rather than acknowledging freedom of
contract, uses instead the expression "contract voluntariness". As has
been shown above, contract voluntariness is within the scope of freedom
of contract. The latter acknowledges the freedom to choose the
contractual parties, to conclude and determine the contents of contract,
whereas contract voluntariness only grants the freedom to choose the
contractual parties and conclude the contract.
2.2 Good faith
As Aristotle pointed out: "if good faith has been taken away, all intercourse among men ceases to exist".143
Good faith has been considered as vitally important ingredient in
modern contract law. "The draftsmen of the PECL appear to have regarded
it as part of the common core of European contract law".144
However, as the notion is closely connected with the cultural diversity
of the communities and has been regarded as injecting moral notions
into law, the meaning of good faith differs considerably according to
different scholars. Some academics, such as Professor Powers, define
good faith as "an expectation of each party to a contract that the other
will honestly and fairly perform his duties under the contract in a
manner that is acceptable in the trade community".145
Not only are there many ways in which good faith can be defined,
but these have also varied considerably over time. In Roman law, good
faith or bona fides was always "associated with trustworthiness, conscientiousness and honorable conduct".146
Cicero gave a complete definition of good faith: "These words, good
faith, have a very broad meaning. They express all the honest sentiments
of a good conscience, without requiring a scrupulousness which could
turn selflessness into sacrifice; the law banishes from contracts ruses
and clever maneuvers, dishonest dealings, fraudulent calculations,
dissimulations and perfidious simulations, and malice, which under the
guise of prudence and skill, takes advantages of credulity, simplicity
However, the medieval jurists spoke of good faith in contract law as
the description of three types of conduct expected by the parties:148
Firstly, keeping one's word. According to the medieval jurists, one must keep his words as a matter of faith, equity and the ius gentium. The term of pacta sunt servanda is the reflection of this notion.
Secondly, a party to a contract must not take advantage of the
other by misleading that party, or by use of unequal bargaining power.
Thirdly, both parties must fulfil such obligations that an honest
person could be expected to, even if they were not expressed in the
The jurist Baldus associated good faith with equity and conscience.149 The requirement of good faith he gave was: "no one should be enriched at another's expense".150
He argued that the judge should take account of good faith in a
contract for two purposes: the first is to know whether contracts are
binding, and the second is to know what the parties' obligations are and
whether they have been fulfilled.151 From the interpretation and analysis, the essence or substantive element of good faith is "just and honest conduct".
In most civil legal systems, good faith was recognized as an overriding principle in making and carrying out the contracts.152
It requires the contractual parties to act reasonably and extends the
obligations under a contract. For example, contractual parties owe each
other a pre-contractual duty to negotiate fairly and honestly. However,
there is a distinction between subjective good faith and objective good
faith. The first one is always regarded as a subjective state of mind
while the latter is normally considered as a norm for the conduct of
parties. In common law systems, historically, good faith was not given
However, in many cases, the implied term "reasonable expectations of
honest people", which is perhaps the closest substitute in common law
that has been found for the notion of good faith in civil legal system,154 has been used to establish the same standard of good faith in particular circumstances.155
PECL establishes good faith as a basic principle running through
the Principles from the formation to the enforcement of contract.156 Roughly speaking, the notion of good faith has at least three functions in PECL:157
- Interpretative: as circumstances often change considerably
in practice and there are always some ambiguities in the contract, good
faith is thus regarded as a yardstick for the interpretation to protect
the justified expectation of contractual parties. It is an efficient way
to implement the "spirit of bargain" and to recognize the minimum
principles of fairness and honesty.
- Supplementary: as the contractual parties cannot express all
the circumstances in the contract, good faith is therefore considered as
a implied term to supplement the contract in determining the nature and
scope of justified expectations.
- Restrictive: good faith also has a restrictive function that
when a rule binding upon the parties does not apply to the extent, or in
a given circumstance that it would be unacceptable to a reasonableness
person, then the judges can apply this principle to restrict the scope
The notion of good faith can be linked to many PECL rules, such as
those which acknowledge pre-contractual liability, ancillary duties, and
post-contractual liability. These have been deduced, to a large extent,
from the notion of good faith. A similar observation can be made about
It can thus be said that good faith, the recognition of moral rights
[as above] in the law, is acting as an overarching principle of modern
In China, however, good faith originates from the moral standard
of Confucianism. It was used to maintain the hierarchy order of the
society and has been rooted in Chinese culture, whereas in European
contract law good faith helped commercial development, as the bona fides
are closely associated with commercial elements. Nowadays, in both the
EU and China, the spirit of good faith has been integrated into the
society and closely associates with the commercial practice. Both
contract laws therefore recognize it as an overarching principle.
2.3 Fair dealing
Good faith and fair dealing are always combined into one notion and
are often considered as a single rule in the PECL. It has been argued by
some scholars that the reason for this combination is to make it less
irritable to the English legal community, as good faith is not widely
accepted by English lawyers.159
However, are they indeed the same? Before answering this question, it
would be interesting to start with the interpretation of these words
from the Oxford English Dictionary: "Fair" is defined as "equitably,
honestly, impartially, just; according to rule"160, while "dealing" means "acting (in some specified way) towards others".161
It is surely true that "fair dealing" means to show just, honorable
behavior towards others, whereas in the definition of "good faith", the
notions of "just" and "honest" are always present. So it is reasonable
to say good faith is a kind of subjective test to the just and honesty
behavior, while fair dealing is the objective one. The first one focuses
on the minds of the parties, whereas the latter emphasizes their
The concept of fair dealing is to a certain extent linked to the
notion of fairness. Some scholars even argue that the notion of fair
dealing is a typical translation of fairness from the Anglo-American
and that the terms "fair dealing" and fairness are closely related. The
present article will consider "fair dealing" and "fairness" as one and
the same notion.
The principle of fairness has played an essential role in the
process of European contract law convergence. Since the second half of
the 1980s, the EC has adopted numerous directives which aim to protect
the interests of consumers. The first directive, commonly referred to as
Doorstep Selling Directive, was adopted in 1985,164 and then followed by the Consumer Credit Directive in 1987,165 the Unfair Contract Terms Directive in 1993,166 the Timeshare Directive in 1994,167 the Distance Selling Directive in 1997,168 the Injunctions Directive in 1998,169 the Consumer Guarantees Directive in 1999170 and the Distance Selling of Financial Services Directive in 2002171.
The main purpose of these directives is to improve the protection of
consumers or weaker parties in the member states, with improving the
functioning of the internal market as an additional aim.172
Nowadays it is widely accepted that "in order to achieve
distributive justice, [we] must impose standards of fairness in
It is generally held that modern contract law has been shifting from
the procedural fairness, which ensures there is no undue influence, to
the substantive fairness, which concerns a fair outcome. The traditional
view, whereby the main purpose of contract law is to enforce the
contract instead of ensuring the fairness of contract, has been
criticized in recent years.174
PECL therefore acknowledges the doctrine of fair dealing as one of the
overarching rules in the Principles, which is required at all stages of a
contract. It includes both procedural and substantive fairness:
- Substantive fairness: PECL provides that unfair terms which have not been individually negotiated are invalid.175
A term which has not been individually negotiated is considered unfair
if it causes a significant imbalance between the parties. This provision
extends the scope of application of the general clause of the EC
directive on the Unfair Terms in Consumer Contracts (1993).176
Another example for substantive fairness in PECL, also in line with the
laws of most EU member states, is the doctrine of change of
circumstances, which is used to correct any injustice which results from
an imbalance caused by supervening events. The acknowledgement of these
doctrines reflects the shift from the classical fairness concept to the
- Procedural fairness: in line with classical contract law, PECL
employs notions of fairness to scrutinize the process of bargaining. It
ensures that contracts are not unfair as a result of procedural
impropriety during the negotiation procedure through the doctrines of
fraud, misrepresentation, duress and undue influence.
The emphasis on the substantive justice in the PECL reveals that the
weaker party protection has been considered as part of internal market
philosophy in current Europe. For a long time, the aim of internal
market philosophy was to improve, simplify and promote the cross-border
trade and competition within the European Union. However, nowadays the
weaker party protection has been gradually absorbed into this internal
For economic and political purposes, China has transplanted a large
range of norms and terms from western contract law. The current Chinese
law is not consistent with its own legal history. One can observe a
break at the beginning of the 20th century, when China
started to transplant underlying norms from the west. At first sight,
one could gain the impression that Chinese contract law no longer
differs significantly from European contract law. However, law is
influenced by the culture, history and society in which it is embedded.
Contract laws in both China and Europe are thus rooted in their own
legal history and culture. Seemingly identical concepts thus take
different meanings in different systems. When compared with Europe,
Chinese Confucianism and its particular legal history determine that the
contractual autonomy should be more limited, particularly in relation
to the public interest. In contrast with China, party autonomy has been
more respected in Europe since the Roman times. These historic and
cultural roots of modern contract laws account for considerable
differences until today.
Indeed, a comparison of fundamental principles which underlie
contract laws in China and in Europe reveal significant differences in
party autonomy. It is reasonable to say the freedom in China is much
more limited by public interest when compared with Europe. Moreover, the
vague term of "public interest" in China has be given a wide scope
which includes not only the interest of the state, but also the interest
of the ruling political party.
Another interesting difference which emerges from a comparison of
fundamental principles of contract law is that in China, for a long
time, contract law was chiefly used to achieve substantive justice among
the society, whereas procedural justice was always ignored. In
contrast, in Europe, the emphasis was long on procedural justice as main
contractual tool for maintaining justice in a society. Traditionally,
"justice" in contract law was thus mostly related to issues of
"substantive fairness" in China, whilst in Europe, it mostly concerned
"procedural fairness". However, modern Chinese society has witnessed a
transformation from state oriented to the individual oriented, and
procedural justice has consequently been advocated for protecting the
interests of individuals. On the contrary, European societies have
transforming from being chiefly individual oriented to being
increasingly society oriented, so that more prominence has been given to
notions of substantive justice. So while the departing points for the
notion of "justice" have differed considerably between China and Europe,
we are currently witnessing a convergence of social values which will
ultimately also lead to a convergence between Chinese and European
Junwei Fu, Doctoral Candidate, Tilburg University School of Law, the
Netherlands; currently Visiting Scholar at Washington University School
of Law, USA.
Study Group on Social Justice in European Private Law, Social Justice
in European Contract Law: A Manifesto, European Law Journal vol. 10
3 Martijn. W. Hesselink & Gerard. J. P. de Vries, Principles of European Contract Law (Kluwer 2001) 80.
4 Stefan Grundmann, An Academic Green Paper on European Contract Law (Kluwer 2002) 1-15.
5 Liming Wang, Fundamental Principles of China's Contract Law, Columbia Journal of Asian Law (1999) 2.
Huixing Liang, zhong guo he tong fa qi cao guo cheng zhong de zheng lun
dian [The Debates over the Drafting of Chinese Contract Law], fa xue
[Jurisprudence] vol. 2 (1996) 13-14.
Jan Smits, The Future of European Contract Law: on Diversity and the
Temptation of Elegance, paper presented at the conference Towards a
European Ius Commune in Legal Education and Research (2001) 3-4.
8 Ole Lando & Hugh Beale, Principles of European Contract Law: Parts I and II (Kluwer 2000) xxi.
9 Ibidem xxii.
10 Smits (note 7) 4.
Principles, Definitions and Model Rules of European Private Law. Draft
Common Frame of Reference (Outline Edition), prepared by the Study Group
on a European Civil Code and the Research Group on EC Private Law
(Acquis Group) (2009); see also Christian Twigg-Flesner, The
Europeanisation of Contract Law (Routledge-Cavendish 2008) 13-15.
12 Wang (note 5) 9.
Guodong Xu, min fa ji ben yuan ze jie shi[Interpretation of Fundamental
Principles of Civil Law], (China University of Political Science and
Law Press 1992) 8-15.
15 Haflidi Larusson & Davis J. Sharp, West Meets East: The New Chinese Contract Law, Ivey Business Journal (1999) 67.
16 Bing Ling, Contract Law in China (Sweet & Maxwell Asia 2002) 39-54.
Feng Chen, The New Era of Chinese Contract Law: History, Development
and A Comparative Analysis, Brooklyn Journal of International Law vol.
27 (2001) 169.
18 Wang (note 5) 2.
19 Ping Jiang, Drafting the Uniform Contract Law in China, Columbia Journal of Asian Law (1996) 245-255.
20 Zhao Yuhong, Law of Contract, Wang Guiguo & John Mo, Chinese Law (kluwer 1999) 227-228.
The guiding principles for the drafting are: 1. Considering the
situations of reforming and the door-opening policy, developing
socialist market economy, establishing the uniform and integrating into
the international market, the legislation should conclude our own legal
experience and learn widely from other developed countries in order to
be consistent with the international treaties and custom laws, and
reflect the same rules of modern economy market; 2. For presenting the
principles of party autonomy in order to protect the freedom of contract
within the law, public order and social ethics, the legislation should
not limit the freedom of contract without serious proper reason; 3.
Considering the era characteristics of law making and implementing, the
legislation should be suitable to the requirements after the success of
the socialist economy market, also shall be suitable to the transforming
from the centrally planned economy to the market economy; 4. The values
of the contract law are: economic efficiency, social justice,
convenience and security transaction. The legislation should focus on
the development of productivity and social interests, protecting the
interests of consumer and employee, safeguarding the social order of
economy market. It should reflect the simply and rapid characteristic of
modern market economy and convenience transaction as well as the form
and procedure for the transaction security; 5. The provisions should be
operational and the expression should be simple and exact. From:
Guangxing Zhang, zhong hua ren min guo he guo he tong fa de qi cao
[Drafting Contract Law of People's Republic of China], fa xue yan jiu
[Chinese Journal of Law] vol. 5 (1995) 4-7.
22 Article 1 the CLC.
Article 4, the CLC: a party is entitled to enter into contract
voluntary under the law, and no entity or individual may unlawfully
interfere with such right.
24 Chaibong Hahm, Confucianism and the Concept of Liberty, Asia Europe Journal (Springer-Verlag 2006) abstract.
25 Mo Zhang, Chinese Contract Law Theory and Practice (Martinus Njihoff Publishers 2006) 242.
Ping Jiang, lun xin he tong fa zhong de he tong zi you yuan ze yu cheng
shi xing yong yuan ze [The Principles of Freedom of Contract and Good
faith in New Contract Law], zheng fa lun tan [Politics and Law Forum]
vol. 1 (1999) 3-5.
28 Zhang (note 25) 246.
30 Ibidem 241.
Article 4 of GPCL (Adopted at the Fourth Session of the Sixth National
Congress of People's Republic of China on 12 April, 1986): in civil
activities, the principles of voluntariness, fairness, making
compensation for equal value, honesty and credibility shall be observed.
32 Jiang (note 19).
33 Jiang (note 26).
The Introduction to the Contract of Law of China and its Major Drafts,
edited by the Civil Law Office, the Legal Affairs Committee of the
Standing Committee of the National People's Congress, (China Law Press
36 Zhang (note 25).
38 Ling (note 16) 40-41.
39 Keijiro Nakamura, The History and Spirit of Chinese Ethics, International Journal of Ethics vol. 8 (1987) 86-87.
40 Zhang (note 25) 74.
41 Jiadong Zheng,
on the Confucian Idea of, the full text is available at: http://bic.cass.cn/english/InfoShow/Arcitle_Show_Conference_Show.asp?ID=342&Title=&strNavigation=Home-%3EForum&BigClassID=4&SmallClassID=9 (last assessed in Oct. 2007).
42 John Rawls, A Theory of Justice, Belknap Press of Harvard University (1999).
43 A.S. Cua, Yi (l) and Li: Rightness and Rites, Antonio S. Cua, Encyclopedia of Chinese Philosophy, (Routledge 2003) 842.
45 A.S.Cua, Junzi (Chun-tzu): The Moral Person, Ibidem 333.
46 A.S. Cua, Yi (l) and Li: Rightness and Rites, Ibidem 842.
Sam Dragga, Ethical Intercultural Technical Communication: Looking
through the Lens of Confucian Ethics, Technical Communication Quarterly
vol. 8 (1999) 369.
Quanyu Huang & Richard S. Andrulis & Tong Chen, A Guide to
Successful Business Relations with the Chinese: Opening the Great Wall's
Gate, New York: International Business (1994) 192-193.
49 Article 4, the GPCL.
50 Article 5, the CLC.
51 Zhang (note 25) 74.
52 Philip C.C. Huang, Civil Justice in China: Representation and Practice in the Qing (Stanford University Press 1996) 5-9.
53 Zhang (note 25) 73-76.
54 Article 58, CLC.
55 Zhang (note 25) 73-76.
56 Article 107-122, CLC.
57 Wang (note 5) 15.
58 Sam Dragga (note 47) 367.
59 Pei-jung Fu, Confucianism: Constructs of Classical Thought, Cua (note 43) 67.
60 Ibidem 68.
61 Junzi has been translated as superior man, noble man, gentleman, etc. In this paper, the author translated into gentleman.
62 Pei-jung Fu, Confucianism: Constructs of Classical Thought, Cua (note 43) 65.
63 Article 4, the GPCL.
64 Article 5, the CLC.
65 Jiang (note 26) 8-12.
66 Dragga (note 47) 371.
Article 119, the CLC: where a party breached the contract, the other
party shall take the appropriate measures to prevent further loss, where
the other party sustained further loss due to its failure to take the
appropriate measures; it may not claim damages for such further loss.
68 Wang (note 5) 15-17.
Ping Jiang, zhong hua ren min gong he guo he tong fa jing jie [A
Detailed Explanation of Contract Law] (China university of Political
Science and Law Press 1999) 6-8.
Huixing Liang, guan yu zhong guo tong yi he tong fa cao an di san gao
[The Third Draft of Chinese Contract Law], jin ji fa zhi [Economics and
law] vol. 2 (1997) 49.
Article 54, the GPCL: a civil conduct shall be the lawful act of a
citizen or legal person to establish, change or terminate civil rights
Huixing Liang, shi chang jing ji yu gong xu liang shu yuan ze [Market
Economy and the Principles of Public Order and Good Morals], min shang
fa lun cong [Civil and Commercial Law Review] vol. 1 (1999) 57.
Axel Hagedorn, Cultural Characteristics in the Chinese Contract Law: A
Multidisciplinary Approach, final thesis from Free University of
Amsterdam (1996) 72.
75 Hahm (note 24) 487.
76 Zhang (note 25) 54.
Hanbin Wang, NPC Creates Good Legal Environment for Reform and
Opening-up, Interview with Wang Hanbin, vice-chairman of the Standing
Committee of the NPC, China Law vol. 1 (1995) 57-60.
Axel Hogedorn, Cultural Characteristics in the Chinese Contract Law: A
Multidisciplinary Approach, final thesis from Free University of
Amsterdam (1996) 17-18.
79 Zhang (note 25) 82.
82 Ling (note 16) 37.
83 Ibidem 48.
84 Liming Wang, he tong fa yan jiu [Study in contract law], People's University Publisher vol. 1 (2002) 25-60.
85 Article 2, the CLC.
86 Article 54, the CLC.
87 Article 41, the CLC.
88 Ling (note 16) 41-42.
Lixing Yang & Shaofeng Zhang, On A Few Problems in Making Laws of
Unified Contract-comments on the Problems Deserving Attention in Making
of Unified Contract Discussed in the Annual Meeting of Civil Law and
Economic Law Research Society of China Law Science Society and Hainan
Academic Seminar, Law of Hebei vol. 3 (1996) 3.
90 Wang (note 5) 23-33.
93 Hugh Collins, The Law of Contract (LexisNexis 2003) 1-5.
94 Martijn. W. Hesselink & Gerard. J. P. de Vries, Principles of European Contract Law (Kluwer 2001) 80.
Article 58, the GPCL: civil acts in the following categories shall be
null and void: (1) those performed by a person without capacity for
civil conduct; (2) those that according to law may not be independently
performed by a person with limited capacity for civil conduct; (3) those
performed by a person against his true intentions as a result of
cheating, coercion or exploitation of his unfavorable position by the
other party; (4) those that performed through malicious collusion are
detrimental to the interest of the state, collection or third party; (5)
those that violate the law or public interest; (economic contracts that
violate the state's mandatory plans; (6) those that performed under the
guise of legitimate acts conceal illegitimate purposes.
96 Article 54, the CLC.
Huixing Liang, he tong de jie shi gui ze [The Interpretation Rule of
Contracts], min shang fa lun cong [Civil and Commercial Law Review] vol 6
Mark van Hoecke, The Harmonisation of Private Law in Europe: Some
Misunderstandings, Mark van Hoecke & Francois Ost, The Harmonisation
of European Private Law (Oxford 2000) 1.
100 Ibidem 2-3.
101 Ewoud Hondius, European Private Law - Survey 2000-2002, European Review of Private Law (2002) 865.
Arthur Hartkamp, Perspectives for the Development of a European Civil
Law, The paper was presented to the Trento Conference of July 15 (1999)
Brigitta Lurger, The Future of European Contract Law between Freedom of
contract, Social Justice, and Market Rationality, European Review of
Contract Law vol. 5 (2005) 443.
104 Ibidem, p. 2.
Duncan Kennedy, Thoughts on Coherence, Social Values and National
Tradition in Private Law, Martijn W. Hesselink, The Politics of a
European Civil Code, Kluwer Law International (2006) 9.
Jan Smits, The Future of European Contract Law: On Diversity and the
Temptation of Elegance, The paper was presented at the Conference
Towards a European Ius Commune in Legal Education and Research,
Maastricht Faculty of Law, 25-26 October (2001) 4.
107 Simone Leitner Case, Case C-168/00,  ECR I-2631.
108 Ewoud Hondius, European Private Law - Survey 2000-2002, European Review of Private Law (2002) 865.
Jens Karsten & Ali R. Sinai, The Action Plan on European Contract
Law: Perspectives for the Future of European Contract Law and EC
Consumer Law, Journal of Consumer Policy vol. 26 (2003) 160.
Arthur Hartkamp, Perspectives for the Development of a European Civil
Law, The paper was presented to the Trento Conference of July 15 (1999)
111 Twigg-Flesner (note 11) 13-14.
113 Giuseppe Gandolfi (Ed.), Code Europe'en des Contracts - Avant-projet, Giuffre'(Milan 2001).
114 Ewoud Hondius, European Private Law - Survey 2000-2002, European Review of Private Law (2002) 870-871.
115 Christian v. Bar, The Contribution of the Study Group on a European Civil Code to the European Convention (2002) 1.
116 Draft Common Frame of Reference (note 11).
Junwei Fu, ou meng ming fa dian cao an zhi shu ping [Commentaries on
the DCFR], min shang fa lun cong [civil and commercial law review] vol.
43 (2009) 447-500.
118 O.J. EC 1989 C 158/400, O.J. EC 1994 C 205/518.
119 Ewoud Hondius, European Private Law - Survey 2000-2002, European Review of Private Law (2002) 870.
800, the full text is available at:
(last assessed in Feb. 2008).
Commission Communication on European Contract Law Com (2001) 398, October 2001,
the full text is available at:
http://ec.europa.eu/consumers/cons_int/safe_shop/fair_bus_pract/cont_law/cont_law_02_en.pdf (last assessed in Feb. 2008).
123 A More
Coherent European Contract Law An Action Plan, COM (2003) 68 final, 12 Feb.
2003, the full text is available at: http://www.isda.org/c_and_a/pdf/com_2003_68_en.pdf (last visited in Feb. 2008).
124 Ibidem 15-20.
125 Ibidem 21-23.
126 Ibidem 23-25.
127 Chapter 1: General Provisions, the PECL.
128 Lando & Beale (note 8) 99.
129 Collins (note 93) 25.
131 P.S. Atiyah, An Introduction to the Law of Contract (Clarendon Press 1995) 5-48.
133 Collins (note 93) 6-7.
134 James Gordley, The Enforceability of Promise in European Contract Law (Cambridge University Press 2001) 16.
135 Morton J. Horwitz, the Historical Foundations of Modern Contract Law, Harvard Law Review vol. 87 (1974) 917.
136 Randy E. Barnett, A Consent Theory of Contract, Columbia Law Review (1986) 269-275.
Maria Rosaria Marella, The Old and the New Limits to Freedom of
Contract in Europe, European Review of Contract Law vol. 2 (2006)
George A. Bermann, Party Autonomy: Constitutional and International Law
Limits in Comparative Perspectative (Juris Publishing 2002) 1-3.
Ulrich Schroeter, Freedom of Contract: Comparison between Provisions of
the CISG (article 6) and Counterpart Provisions of the PECL, The
Vindobona Journal of International Commercial Law and Arbitration vol. 6
141 P.S. Atiyah, The Rise and Fall of Freedom of Contract (Clarendon Press 1979) 398.
Principles, Definitions and Model Rules of European Private Law: Draft
Common Frame of Reference (DCFR), Outline Edition (2009) 18.
Cited by William Tetley, Good Faith in Contract Particularly in the
Contracts of Arbitration and Chartering, the text is available at: http://www.mcgill.ca/files/maritimelaw/goodfaith.pdf (last assessed in March 2008).
144 Reinhard Zimmermann & Simon Whittaker, Good Faith in European Contract Law (Cambridge University Press 2000) xiii.
P.J. Powers, Defining the Indefinable: Good Faith and the United
Nations Convention on the Contracts for the International Sale of Goods,
Journal of Law and Commerce vol. 18 (1999) 333.
H.A. Rommen, The Natural Law, A Study in Legal and Social History and
Philosophy, St. Louis: B. Herder Book Co, translated by Thomas R. Hanley
De Off, 3, 17. Quoted by Association Henri Capitant des Amis de la,
Societe de Legislation Comparee, European Contract Law: Materials for a
Common Frame of Reference: Terminology, Guiding Principles, Model Rules
(European Law Publisher 2008) 152.
148 James Gordley, Good Faith in Contract in the Medieval ius commune, Zimmermann & Whittaker (note 144) 93-106.
149 Ibidem 108.
151 Ibidem 109.
Art. 1134 Section 3 French Civil Code; 242 German Civil Code; Article 2
Swiss Civil Cde; Article 1175 & 1375 Italian Civil Cde; Article
762, Section 2, Portuguese Civil Code; Article 288 Greek Civil Code;
Article 6:2 & 6:248 Dutch Civil Code
153 Atiyah (note 131) 213.
154 Tetley (note 143) 28.
156 Lando & Beale (note 8) 114.
E.Allan Farnsworth, Duties of Good Faith and Fair Dealing under the
Unidroit Principles, Relevant International Conventions, and National
Laws, the text is available at: http://www.mcgill.ca/files/maritimelaw/goodfaith.pdf (last assessed in Dec. 2007).
158 Artice 1:103, Book I, the DCFR (2009).
159 Marjorie Hoch, Is Fair Dealing A Workable Concept for European Contract Law, Global Jurist Topics vol. 5 (2005) 17-18.
160 Oxford English Dictionary: www.oed.com.
162 Lando & Beale (note 8) 112-116.
163 G.P. Fletcher, Comparative Law as A Subversive Discipline, American Journal of Comparative law (1998) 5-40.
164 Directive 85/5777/EEC of 20 Dec. 1985 to protect the consumer in respect of contracts negotiated away from business premises.
Directive 87/102/EEC of 22 Dec. 1986 for the approximation of the laws,
regulations and administrative provisions of the Member States
concerning consumer credit.
166 Directive 93/13EEC of 5 April 1993 on unfair terms in consumer contracts.
Directive 94/47/EEC of 26 Oct. 1994 on the protection of purchasers in
respect of certain aspects of contracts relating to the purchase of the
right to use immovable properties on a timeshare basis.
168 Directive 97/7/EC of 20 May 1997 on protection of consumers in respect of distance contracts.
169 Directive 98/27/EC of 25 May 1998 on injunctions for the protection of consumers' interests.
170 Directive 1999/44/EC of 25 May 1999 on certain aspects of the sale of consumer goods and associated guarantees.
171 Directive 2002/65/EC of 23 Sep. 2002 concerning the distance marketing of consumer financial services.
Brigitta Lurger, The "Social" Side of Contract Law and the New
Principles of Regard and Fairness, Arthur S. Harkamp etc., Towards a
European Civil Code (kluwer 2004) 272.
174 Hoch (note 160) 32-33.
175 Article 4: 110, the PECL.
176 Lando & Beale (note 8) 266.
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