4 - Article 580 (2) of the Chinese Civil Code

Summary

Since Xinyu Company v. Feng Yumei was published in the Gazette of the Supreme People’s Court in 2006, a peculiar expression ‘a breaching party’s right to termination’ emerged in China. Though a misunderstood concept, it does reveal problems in the rules on contract termination under the Chinese Contract Law 1999. The main problem is that, the legal protection is insufficiently afforded to long-term contracts. Art. 580 (2) of the Chinese Civil Code 2020 provides a new approach of judiciary termination, which may provide some improvement, but only for cases involving performance of non-monetary obligation. For those involving performance of monetary obligation, this rule is inapplicable. Judicial termination of contract under Art. 580 (2) should be exercised very cautiously. The justification for terminating a contract, from force majeure to change of circumstance and to commercial risk, decreases in sequence.