Introduction
One important aspect of the docking of institutional mechanisms in the Guangdong-Hong Kong-Macao Greater Bay Area is the effective convergence of legal mechanisms in the context of the three jurisdictions in order to create a world-class law-based business environmentin the Greater Bay Area.In this regard, as a professional legal service provider,Guangdong Teamwork Law Firm rooted in Nansha, the center of the Bay Area and oriented to the whole world , is going to do a series of studies in this particular field.In this article, the author analyzes and compares the factors of invalidity of contracts under the civil law sector in Hong Kong and mainland jurisdictions to provide some effective information for businessmen.
I. Provisions of the General Provisions of the Civil Code on the invalidity of contracts
Article 144
A civil juristic act performed by a person who has no capacity for performing civil juristic acts is void.
Article 146
A civil juristic act performed by a person and another person based on a false expression of intent is void.
Where an expression of intent deliberately conceals a civil juristic act, the validity of the concealed act shall be determined in accordance with the relevant laws.
Article 153
A civil juristic act in violation of the mandatory provisions of laws or administrative regulations is void, unless such mandatory provisions do not lead to invalidity of such a civil juristic act.
A civil juristic act that offends the public order or good morals is void.
Article 154
A civil juristic act is void if it is conducted through malicious collusion between a person who performs the act and a counterparty thereof and thus harms the lawful rights and interests of another person.
II. Illegal provisions in the relevant laws of Hong Kong Contracts
According to the classification of scholar Betty ho, a contract is considered illegal by the court due to different factors, mainly including the illegality of the contract itself and the illegality of the manner of performance. The illegal contract itself includes an illegal purpose, infringement, violation of law, public policy, obstruction of justice, immorality, damage to the public good, restricting the development of commercial transactions, etc.
Specifically, first of all, the purpose of the contract is to commit a criminal or tortious act, such as conspiring to defraud an insurance company. A tort is an act of civil negligence. For example, in the case of Chung Mui Teck v Hang Tak Buddhist Hall Association[7] the parties contracted to build small houses for sale on land in the New Territories where neither A nor B were eligible to apply under the Government's small house policy. The court ruled that the contract was in fact a tortious act of procuring the indigenous residents to make false statutory declarations and misrepresentations to the government, which were unlawful. The contract was therefore unlawful.
Secondly there is also the consideration of violation of common law, statutory provisions, moral standards and public policy. A breach of public policy will not be recognised and enforced by the courts and is a prohibited performance in Hong Kong. In the case of Lee Pui Wan and Wong Mei Yin [1997] HKLRD 1141, the High Court of Hong Kong interpreted public policy as certain principles which must be upheld in a civilised society. A Hong Kong court may refuse to recognise and perform a valid contract on the ground of public policy where the foreign law applicable to the parties' contract is inconsistent with the relevant local policies and regulations of Hong Kong.
In addition to the above factors, there are also factors involving the contract that undermines the operation of the government and the judicial system in internal or foreign affairs, or is contrary to the overall economic interests of the community is also considered as illegal. In the case of Esso Petroleum Co. Ltd v Harper's Garage (Stourport) Ltd., A purchased garages and oil from B, while limiting the purchase to five years and the sale of oil to 20 years. The court noted that A had no local interest and was not being denied freedom of trade by B. The restriction on the period of validity of the transaction was a condition for maintaining a steady supply of oil and was therefore valid. However, the restriction on the validity of the purchase of the garage would have resulted in A not being able to develop its business as originally intended[9] and was therefore invalid. According to common law, a 20-year validity period is not necessarily invalid, but the court will take into account the value of the transaction and the consequent economic benefit of the transaction.
III. Differentiation of causes of contract invalidation
In the context of the Civil Code, invalidity of contracts mainly relates to subjective incapacity, subjective false intent, malicious collusion and consequences prejudicial to the interests of society and others and public order and morality. While in the context of HongKong law, the invalidity of a contract includes unlawfulness ccontent and unlawfulness in the manner of performance.
Generally speaking, the main consideration for invalidating a contract is whether the contract would have an adverse effect, both in terms of economic tangible value and in terms of social good.
The Civil Code has a preference for the subject matter of the contract and focuses on the protection of the disadvantaged party to the contract. In terms of the subject matter of the contract, both the Mainland Civil Code and Hong Kong contract law advocate the subjective intent of the parties to the contract to be justified. If the intention is false or unjustifiably beneficial, the contract will be rendered invalid.
Iv. Consequences of invalidation of the contract
In conclusion, Article 157 of Civil Code of the People’s Republic of China stipulates where a civil juristic act is void, revoked, or is determined to have no legal effect, the property thus obtained by a person as a result of the act shall be returned, or compensation be made based on the appraised value of the property if it is impossible or unnecessary to return the property. Unless otherwise provided by law, the loss thus incurred upon the other party shall be compensated by the party at fault, or, if both parties are at fault, by the parties proportionally. Article 507 stipulates where a contract does not take effect, or is void, revoked, or terminated, the validity of a clause concerning dispute resolution shall not be affected. The above provisions indicate that the legal consequences of the invalidation of a contract are as follows: the contract is not legally binding from the beginning, and one party shall return the property acquired by the contract; If it is impossible or unnecessary to return the prpperty, the party shall compensate at a discount. The party in fault shall compensate the other party for the losses suffered thereby. Both parties shall bear respective liabilities if they are in fault respectivly.
However, where the relevant provisions in the Contracts Law of Hong Kong associated with the illegal causes above, the contract will not be recognized and enforced by the court, and the partie's request asking for court support will not acknowledged. Where the contract is invalid, the Civil Code allocates the interests of the parties due to the formation or performance of the contract from the angle of equity and justice. When determining the scope of damage compensation, the liability should be determined reasonably according to the fault degree of the parties, and the property appreciation or depreciation factors should be taken into account when determining the scope of property return, so as to avoid the phenomenon of double profit or double damage.