‘Yes’ to the force majeure question, as Chinese courts would say in disputes arising from contractual performance affected by COVID-19-related control measures.
After the outbreak of novel coronavirus (COVID-19) in Wuhan, a large number of contracts could not be fulfilled because of a series of infection control measures.
(Note: On 11 Feb. 2020, WHO has named the disease COVID-19, short for “coronavirus disease 2019”.)[1]
How will the Chinese courts deal with the contractual disputes arising therefrom?
In 2003, when the SARS crisis broke out in China, a similar dilemma occurred.
In 2003, the Supreme People's Court (“the SPC”) issued a specific judicial policy on this issue, which stipulated that disputes arising from the failure of performance of the contract directly caused by the administrative measures taken by the government and relevant authorities to prevent and control the SARS crisis, or from the impossibility of the parties to perform contractual obligations caused by the SARS crisis, would be handled by the court in accordance with the force majeure provisions of the PRC Contract Law. [2]
So, does the novel coronavirus outbreak constitute a force majeure event, like the SARS crisis?
According to “the General Provisions of the Civil Law of the People's Republic of China” (中华人民共和国民法总则, “the General Provisions”) and the PRC Contract Law, force majeure refers to “an objective event or circumstance which is unforeseeable, unavoidable and insurmountable”.
Does the coronavirus outbreak satisfy such conditions?
In short, yes (generally).
We can also quote the opinions of Chinese courts on the SARS crisis for reference. At that time, Beijing Second Intermediate People’s Court stated:
“We are of the opinion that the SARS crisis is an unexpected abnormal event and an epidemic with worldwide impact, which is not only unforeseeable for the parties in dispute, but is also unforeseeable for medical experts with extensive medical knowledge. Since the outbreak of this crisis, there has been no effective method to stop its wide transmission, and the source of infection has not been precisely identified. Although many patients infected with SARS have been cured and have left the hospital, medical experts have not yet determined any effective treatment for SARS. Therefore, at least at present, such an abnormal event is an objective circumstance that is unforeseeable, unavoidable, and insurmountable by human beings. Legally speaking, it shall be deemed as a force majeure event, and specifically, a kind of natural disaster.” [3]
According to the opinion of the Beijing Second Intermediate People’s Court, the 2019 novel coronavirus outbreak, which is similar to the SARS crisis, therefore, should also be regarded as a force majeure event.
In addition, the Commission of Legislative Affairs of the National People's Congress (NPC) Standing Committee also indicated on 10 Feb. 2020, that for those unable to perform contracts, the novel coronavirus outbreak is an objective event or circumstance which is unforeseeable, unavoidable and insurmountable. [4]The Commission is a working organ of the NPC Standing Committee (China’s Legislature) in charge of drafting legislation and providing legal counseling.
If the novel coronavirus outbreak constitutes a force majeure event, what are the results thereof?
If the contract provides legal consequences of force majeure events, the court will respect the agreement herein by the parties.
If the contract does not contain any force majeure clause, the court will solve relevant disputes in accordance with Chinese laws relating to force majeure. The details are as follows:
First of all, the parties can be exempted from the liabilities arising from their failure to perform the contract.
According to Article 180 of the General Provisions, if the parties are unable to perform their civil obligations due to force majeure, they are exempted from civil liabilities, while pursuant to Article 117 of the PRC Contract Law, if the parties of the contract are unable to perform their contractual obligation due to the force majeure event, they may claim partial or full exemption from the liability for breach of contract in light of the impact of the force majeure event.
Secondly, the parties can claim termination of the contract.
Pursuant to Article 94 of the PRC Contract Law, if the purpose of the contract is frustrated due to the force majeure event, the parties may terminate the contract.
Thirdly, the party who is unable to perform contractual obligations shall notify the other party of the contract.
Pursuant to Article 118 of the PRC Contract Law, either party that is unable to perform the contract due to the force majeure event shall notify the other party in a timely manner to mitigate the losses that may be caused to the other party, and shall produce evidence thereof within a reasonable period to the other party.
And how should the parties produce evidence of the force majeure event?
The China Council for the Promotion of International Trade (CCPIT) has issued a notice on 30 Jan. 2020, which states that the CCPIT can issue force majeure certificates for enterprises to prove that the party concerned is affected by the 2019 novel coronavirus outbreak and is, therefore, unable to fulfill the contractual obligations of international trade contract on time. [5]
[1] https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200211-sitrep-22-ncov.pdf
[2] 《关于在防治传染性非典型肺炎期间依法做好人民法院相关审判、执行工作的通知》
[3] 北京市第二中级人民法院课题组，《正确处理“非典”疫情构成不可抗力免责事由案件》，《法律适用》2003年第6期
[4] 《企业因疫情不能正常履行合同怎么办？全国人大常委会法工委发言人臧铁伟说法律有相应规定》，http://www.npc.gov.cn/npc/c30834/202002/b9a56ce780f44c3b9f6da28a4373d6c3.shtml
[5] http://www.ccpit.org/Contents/Channel_4256/2020/0130/1238885/content_1238885.htm
Contributors: Guodong Du 杜国栋
