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AGENCY LAW IN THE PEOPLE’S REPUBLIC OF CHINA

Unlike the law in the United Kingdom, in the People’s Republic of China there is no specific statute dedicated to the rights and protections of commercial agents. However there are statutory provisions for agency in general.

Agent law in China is governed by Section 2 of Chapter 4 of the Civil Juristic Acts and Agency of the General Principles of the Civil Law of the People’s Republic of China (the “Legislation”) which came into effect on 1 January 1987.  The Legislation is mandatory and both agents and principals are not allowed to contract out of it.

Definitions
Under the Legislation, agents include:

  • Entrusted agents, whose power is derived from the principal;
  • Statutory agents, whose power is prescribed by law; and
  • Appointed agents, whose power is designated by a people’s court or the appointed unit

Under Chinese law there is no statutory or common law definition of “commercial agent” or “principal”. Unlike English law, the Legislation does not make any distinction between agents whose actions are primary or secondary.

Termination:
Under Chinese law, there is no statutory requirements in terms of notice period to be given  or the form the notice of termination should take.  On termination of the agency contract, an agent will not have any right to statutory damages or unpaid commission following the termination of the agency. Equally the agent will not have any non-contractual entitlements specifically relating to the agency agreement.

The ability of an agent to assign rights and duties to another person under the contract is governed by the Legislation. The agent needs to agree the assignment with his principal. Article 68 of the Legislation provides:

“if in the principal’s interests an entrusted agent needs to transfer the agency to another person, he shall first obtain the principal’s consent. If the principal’s consent is not obtained in advance, the matter shall be reported to him promptly after the transfer, and if the principal objects, the agent shall bear civil liability for acts of the transferee; however, an entrusted agency transferred in emergency circumstances in order to safeguard the principal’s interest shall be accepted”.

The Legislation allows an agent and principal to make a claim for breach of contract, without providing a remedy. However Chinese contract law will apply, and similar to English contract law, damages will be available to the injured party, subject to the duty to mitigate.

Both agent and principal can be held liable for their actions as follows:

  • If the principal accepts the agent’s act which was performed with no authority, or beyond the scope of the authority given under the agency agreement, or after the agreement has expired then the principal will be held liable for the agents acts.
  • If a principal is aware that an agent is carrying out an act under the agreement but fails to repudiate it, the principal’s consent shall be deemed to have been given.
  • If the agent fails to perform its duties, and causes damage to the principal, the agent shall be held liable.
  • If an agent colludes with a third party and harms the principal, both the agent and the third party shall be held jointly liable.
  • If the agent carries out an activity which is known to be illegal, or if the principal is aware that the agent’s acts are illegal but fails to object to them, both the agent and principal shall be held jointly liable.

Choice of Law and Jurisdiction
Regardless of the parties agreeing that another jurisdiction is the proper law and forum of the contract, if the agency contract is carried out in China, Chinese law and jurisdiction will prevail, to govern the contract.

Fox Williams would like to thank Fairbairn Catley Low & Kong in Hong Kong for its contribution to this page

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