In China, the types of contract-based claims are stipulated by law, and different types of claims together establish a claim system. Arbitrators should identify the types of claims made by the parties.
A claim is the target of the arbitration, which must be made an award on by the arbitral tribunal. Evidence and documentation required to support one’s claim will be different as the type of claims varies, and the respondent has to make different defense accordingly.
This post will introduce the claim system of contract disputes under Chinese law.
I. Why the types of claims matter?
In China, the parties often blur the types of arbitration claims.
Most Chinese parties and their lawyers are confused with the system of arbitration claims, so they often fail to make clear of their arbitration claims.
For example, an applicant expresses his claim as “the respondent repays CNY 5.2 million to the applicant”. However, under Chinese law, the claim of “repayment of money” can be generated under multiple types of arbitration claims. For example:
(1) The respondent shall repay the money according to the contract;
(2) The respondent shall refund the surplus if the applicant overpays;
(3) The respondent shall repay the money paid by the applicant for the purpose of restitution upon the rescission of the contract;
(4) The respondent shall repay the money paid by the applicant after the contract is invalidated.
If the applicant fails to indicate the type of his “repayment of money” as mentioned above, the arbitral tribunal needs to examine the claim carefully before making a judgment.
II. How to examine claims – Searching in the claim system
According to the PRC Contract Law and its theory, claims generally correspond to the following three categories of actions: action for performance (给付之诉), action for modification of a right or legal relationship (形成之诉), and action for declaration (确认之诉). In addition, there are other arbitration claims in practice, such as the claim to determine the respondent’s breach of contract, which I would classify it under an action for confirmation (认定之诉).
1. Action for performance
The action for performance is an action where the applicant requests the respondent to perform certain obligations, and generally involves the following claims:
A. Continuing performance(继续履行)
The respondent continues to perform the obligations stipulated in the contract.
B. Compensating for losses(赔偿损失)
The respondent compensates the applicant for losses.
The compensation for losses can be further divided by the following factors:
a. What causes the liability for losses
There are six reasons for liability for losses:
(1) The party at fault shall be liable for compensation after the contract is invalidated or cancelled;
(2) The party at fault shall be liable for compensation in case of any fault in conclusion of a contract;
(3) The defaulting party shall be liable for compensation when breaching the contract while the contract is not rescinded;
(4) The party who causes the rescission of the contract shall be liable for compensation;
(5) If the contract is rescinded due to breaches and the claim for restitution is impossible, the defaulting party shall be liable for compensation for losses arising therefrom;
(6) The defaulting party shall be liable for compensation when breaching the post-contract obligations.
The liability for losses under reason (4) can be further divided into:
i. The liability for losses caused by the breach of contract by the parties;
ii. The liability for losses caused by the rescission of the contract according to the law.
b. What kind of losses?
Under Chinese law, there are following five types of compensation for losses that may be supported by the arbitral tribunal:
(1) Compensation for the loss of reliance interest(信赖利益);
(2) Compensation for the loss of performance interest(履行利益);
(3) Compensation for the loss of expectant interest(可得利益);
(4) Compensation for the loss of intrinsic interest(固有利益);
(5) Compensation for the loss of restitution interest(返还利益).
I will elaborate on the above five kinds of losses in detail in other posts.
C. Paying liquidated damages(支付违约金)
The claim for liquidated damages can be divided into four following sub-types:
(1) Liquidated damages for the fault in conclusion of a contract(过失责任违约金);
(2) Liquidated damages for the breach of contract(违约责任违约金);
(3) Liquidated damages for the rescission of contract(解除合同违约金);
(4) Liquidated damages for the post-contract liability(后合同责任违约金).
D. Returning property(返还财产)
The parties shall return the property acquired based on the contract after it is invalidated or canceled.
E. Restoring(恢复原状)
The parties should “clean up” after the rescission of the contract, i.e., to restore the status quo to the original state before signing the contract, generally in the following three ways:
(1) Return the property acquired during the performance of the contract or restore it to its original state;
(2) Pay the necessary maintenance expenses incurred by the party making the restitution during the possession of the property;
(3) Pay the necessary expenses incurred for the restitution.
F. Compensating by cash equivalent(折价补偿)
If the parties cannot return the property or there is no need to return it after the contract is invalidated or revoked, they may compensate the other party by giving cash equivalent.
G. Taking remedial measures(采取补救措施)
The remedial measures include the following two types:
(1) The defaulting party shall take remedial measures, including repair, replacement, remake, return, reduction of price or remuneration for the defective performance when the contract is not rescinded;
(2) When the contract is rescinded, the defaulting party shall take remedial measures as one of the “clean-up” methods.
H. Deposit and deposit-related claims
It mainly includes the return of the deposit and the return of twice the amount of the deposit. In addition, it can also involve the determination of the loss of deposit, which can be categorized as a claim in an action for declaration.
I. Undertaking the payment liability(承担给付责任)
The typical situation is that the respondents are required to bear the joint and several liability.
2. Action for modification of a right or legal relationship
The action for modification of a right or legal relationship is an action where the applicant unilaterally changes the existing legal relationship or rights in civil laws, such as rescinding the contract, offsetting the debt, and revoking the act of the respondent.
Generally, the parties do not need to file a lawsuit or arbitration to do such an act. However, many Chinese parties prefer such a ruling made by a court or arbitral tribunal to support their claims.
3. Action for declaration
The action for declaration is an action where the applicant requests to confirm the existence or non-existence of a legal relationship or right in civil laws.
Generally, there are three types of claims in this action:
A. Declaring the validity of the contract, mainly including determining the validity/invalidity of the contract. It’s worth noting that, the arbitral tribunal will also examine ex officio the validity of the contract in the action for performance, even though the parties make no such claim.
B. Declaring whether the contract has been rescinded.
C. Declaring whether the obligation has been offset.
D. Declaring the property ownership, which is complex and extensive, generally including determining the ownership of real rights and whether the claim exists (for example, determining whether the deposit is lost).
4. Action for confirmation
Action for confirmation is that the applicant requests the arbitration institution to confirm the existence or non-existence of a fact, right, obligation or liability. It is not specified by the law, but occurs from time to time in practice.
Photo by Jerry Wang (https://unsplash.com/@jerry_318) on Unsplash
Contributors: Dennis (Yongquan) Deng 邓永泉
