Exploitative and unfair Contracts

Legal Recognition and Remedies for Unfair Contract Term

Legal Recognition of Unfair Contract

Unfair contract, commonly referred to as "霸王条款" (hegemonic clauses), have evolved from standardized contracts. These terms, found within standardized contracts, may include clauses that exempt one party from liability, increase the other party's obligations, or eliminate significant rights of the other party. In practice, consumers often find themselves compelled to accept such terms due to the dominant position of the business. When disputes arise, businesses often use these terms as a basis to evade their responsibilities. This situation can lead to numerous conflicts.

Legal Regulation of Unfair Contract Terms

The "Consumer Rights Protection Law" is China's first law to specifically address rules governing standardized contract terms. According to Article 26 of this law, when businesses use standardized contract terms in their operations, they must prominently bring to the attention of consumers the contents that significantly affect the interests of consumers, such as the quantity and quality of goods or services, price or fees, performance period and method, safety precautions and risk warnings, after-sales services, civil liability, etc. The law prohibits businesses from employing unfair or unreasonable provisions that exclude or limit consumer rights, relieve or exempt businesses from responsibilities, or increase consumer obligations in a manner that is unfair and unreasonable, using standardized contract terms, notices, statements, in-store notices, etc. Clauses containing such provisions are deemed invalid.

The Contract Law

In 1999, China's "Contract Law" was promulgated and became the fundamental law in the realm of contracts in China. It includes provisions regarding the formation, interpretation, and invalidity of standardized contract terms, providing comprehensive regulations on such terms for the first time.

Specifically, Article 39 of the Contract Law states that when forming contracts using standardized contract terms, the party providing these terms must adhere to the principle of fairness in determining the rights and obligations between the parties and must reasonably bring to the other party's attention the clauses that exempt or limit their liability, as required by the other party.

Standardized contract terms are defined as terms that are pre-drafted by the parties for repeated use and are not negotiated with the other party during the contract formation.

In the case of exemption clauses in standardized contract terms, the party providing these terms is obligated to explain the terms to the other party as a condition for their effectiveness. Article 40 of the Contract Law specifies that an exemption clause, or a clause that shifts responsibility to the other party, or a clause that eliminates the major rights of the other party in standardized contract terms is invalid.

Remedies for Unfair Contract Terms

Consumers have several avenues for seeking remedies against unfair contract terms:

Judicial Remedy

Consumers can claim the invalidity of unfair contract terms based on the "Consumer Rights Protection Law," "Contract Law," and judicial interpretations of the Supreme People's Court. For instance, if a developer pre-fills a housing purchase contract with an unfair exemption clause, and the developer fails to prove that they properly brought the clause to the buyer's attention, the clause's validity can be denied under the law.

Complaint to Administrative Authorities

The "Regulations on the Supervision and Handling of Illegal Acts in Contracts," issued by the State Administration for Industry and Commerce, provide a robust legal basis for addressing contract violations by businesses. According to Article 9 of these regulations, in contracts between businesses and consumers that use standardized contract terms, businesses are prohibited from exempting themselves from certain responsibilities, such as those for personal injury caused to consumers, losses to consumer property due to intentional or gross negligence, guarantees owed to consumers for goods or services, contractual liability as required by law, and other responsibilities required by law and regulations. Article 10 of these regulations further specifies the penalties for violations. Administrative authorities can issue warnings, impose fines of up to three times the illegal gains, or fine up to ¥30,000, and impose fines of up to ¥10,000 if there were no illegal gains.

Dial 12348 （Legal Aids Hotline) for your further queries.

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Consumer Association Complaint

According to the "Consumer Rights Protection Law," consumer associations have a public interest responsibility to accept and investigate consumer complaints. When consumers encounter violations of their rights due to unfair contract terms, they can file a complaint with a consumer association, requesting them to investigate and safeguard their legal rights.

Dial: 12345

Reference: “霸王条款”的法律认定及其救济途径 - 知乎 (zhihu.com)