Monthly Archives: February 2016

How Unfair Can It Be Considered “Obvious Unfair” Under PRC Contract Law

  Under PRC Law (more specifically, Article 54 of PRC Contract Law), a contract may, at the application of the party within the prescribed period of time, be set aside if obvious unfairness can be found when the contract was entered into.   The foregoing statutes of “Obvious Unfairness” alone is so vague that that the PRC judges or arbitrators, as the case may be, appears to have unrestricted discretion to strike down contracts representing the mutual consent of the parties. Following such impression, such general ground is frequently relied upon to challenge the validity of a contract, especially by foreign lawyers in the context of international arbitration in which PRC laws are relevant.   In particular, when it comes to cross border merger and acquisition, it is not uncommon that purchase price would be drastically lower than certain superficial accounting threshold, such as net asset or registered capital. As such purchase price may not make sense for a third party without inside information of the transaction, we can always expect to see arguments based upon “obvious unfair” in such cases.   That said, the “obvious unfair” ground is not as vague as we imagined.   First of all, the […]