- (2008) MinErZhongZi 8
- Supreme People’s Court
- Shaanxi Xianyang Nebula Machinery Ltd. v. Rainbow Electronics Group Inc.
CONTRACT NEGOTIATIONS BETWEEN TWO CHINESE COMPANIES - GOVERNED BY CHINESE LAW
"COMMENTS" BY CHINESE JUDGES ON DECISIONS - NOT LEGALLY BINDING – WHETHER THERE WAS CULPA IN CONTRAHENDO - REFERENCE TO ARTICLE 2.1.15 UNIDROIT PRINCIPLES 2004 IN A "COMMENT" WRITTEN BY JUDGES OF THE SUPREME PEOPLE’S COURT
Plaintiff, a Chinese company in Shanxi, agreed with Defendant, another Chinese company in Shanxi, to test the quality of components produced by the plaintiff and to be used by Defendant for a trail production of television sets, with a view to concluding a formal contract once Defendant confirms to Plaintiff that the quality of the components was satisfactory. When one year later the price of the television sets to be produced by Defendant with the components supplied by Plaintiff fell sharply on the market, the parties agreed to adjust the price of the components accordingly. Defendant confirmed that the components’ quality was satisfactory, but in the meantime the price of TV sets further decreased by 50-60% prompting Defendant to ask for a further reduction of the price of the components. Plaintiff refused and Defendant broke off the negotiations prompting Plaintiff to sue Defendant for culpa in contrahendo. The First and Second Instance Courts decided in favor of Defendant on the ground that Defendant was entitled to break off the negotiations.
The decisions were published by the Supreme People’s Court as a “guide” case and they were commented by two judges of the Supreme People’s Court. In the comment it was discussed whether Defendant had broken off the negotiations in bad faith and since the Chinese Contract Act only deals with the entering or continuing negotiations in bad faith but not with breaking them off in bad faith the judges referred to UNIDROIT Principles (2004) article 2.1.15 and mentioned the illustration 5 in its official comment which in their view supported the Court’s decisions.