Chinese Contract Law

Claims

1. The non-compete and trade secret clauses in the Franchising Contract were evidently unfair. The court should order rescission of the clauses.

2. SDR should undertake all costs caused by the suit.

Facts and Reasons

1. Court’s findings that the conclusion of the contracts by the parties was based on their true declarations of intention and the non-compete clause did not contravene the principle of fairness were wrong. The conclusion of the contracts was based on JY’s incomplete genuine declarations of intention. SDR used its advantageous position to apply the standard contract in which the non-compete clause was too onerous and led to unequal rights and obligations between both parties. Furthermore, it was in violation of the principle of fairness.

2. According to the relevant provisions on the standard terms in Contract Law, the non-compete clause which increased JY's responsibilities and excluded its fundamental right should be invalid.

3. Policy Consideration: In reference to the legislation and cases of other countries, it is indispensable to consider whether the non-compete terms of the contract will restrict the fair competition and the development of free market. The irrational use of non-compete and trade secrets clauses will affect the free market competition, and it may even lead to monopoly.

Arguments

The case is a dispute over franchising contract. As a new mode of business, franchising becomes more popular because of its low capital, high efficiency and rapid expansion. However, franchising also gives rise to the increasing number of disputes. The commercial profit is the initial purpose for the franchisees to enter into the franchising contracts with the franchisors. What’s more, the franchisees usually do not fully understand all of the terms in the franchising contracts. Once the disputes arise, the franchisees tend to be in the disadvantageous position to protect their legal rights.

This article is set out as follows:

1. In...