Building Materials Perspective... The determination and operation of the force majeure clause in the contract of sale under the new crown outbreak.

Published:

2022-04-22

As one of the most common economic contracts, the contract of sale was affected in many ways during the new crown epidemic. Especially for production and processing enterprises, in terms of raw material procurement, they may face the problems of not being able to purchase sufficient production necessities in time, the price of raw materials has risen sharply, and the production cost has increased significantly, which will cause profits to be compressed or even losses; in terms of sales, Because of the epidemic prevention and control measures in different regions, some product sales, overstock, and price drops, there may also be delays in delivery, failure to do so, or rejection of the other enterprise in breach of contract. This paper only analyzes the determination of force majeure involved in the purchase and sale of production and processing enterprises and makes suggestions on the operation of the legal level. The determination of the force majeure clause under the new crown outbreak in 1.. Since the New Crown epidemic in 2020, discussions have continued about the impact of the New Crown epidemic and force majeure on contract performance. The author believes that the epidemic is not necessarily equivalent to force majeure, the contract under the epidemic, whether it should be performed normally, or the application of the principle of change of circumstances to be changed, or belong to force majeure to be exempted or lifted, need to be defined in the light of the specific circumstances. Here, the author through the positive and negative two cases to briefly explain: Case one In general, unless expressly agreed in the contract, a shortage of raw materials is usually not a case of force majeure claimed by the seller because the seller should have other channels to ensure an adequate supply of raw materials. However, in the context of the new crown epidemic, the cause of the shortage of raw materials may be considered force majeure if the seller has no access to raw materials for reasons other than its own. However, it can also be seen from this case that the impact of the epidemic on the supply of raw materials is claimed to be force majeure, and it needs to be proved that the supply of raw materials is single and indeed affected by the epidemic and there are difficulties in the supply of raw materials. The court will make a comprehensive judgment based on the seller's performance of the contract and the communication between the two parties. It is worth noting that when force majeure is used as a cause of termination, the contract can often be terminated only when the force majeure causes the contract to be completely unfulfilled and the purpose of the contract cannot be achieved. If the contract cannot be performed for a while, the contract can still be performed once the cause of force majeure disappears. At this time, unless one of the parties has evidence to prove that the time factor has an important influence on the realization of the purpose of the contract, the delay in performance will cause the purpose of the contract to be unable to be realized, otherwise it can only produce the effect of deferred performance, but cannot terminate the contract. Case II As can be seen from the above cases, force majeure as an exemption has the legal effect only of exempting matters and liability within the scope of force majeure. If force majeure and the debtor's conduct together constitute the cause of the damage, the liability for the loss shall be divided according to the principle of proportionality in the proportion of the effect of the two on the occurrence of the damage, and the defense of force majeure shall not be supported if it is based on the subjective reasons of the debtor and not affected by force majeure. In addition, there is a situation in which the contract of sale can continue to be performed, but because of the epidemic factors, resulting in the performance of the contract is obviously unfair, the seller can also claim a change of circumstances to request the court or arbitral tribunal to adjust the rights and obligations of the contract. In this regard, the Supreme People's Court issued<关于依法妥善审理涉新冠肺炎疫情民事案件若干问题的指导意见（二）>The notice has clear provisions, the author will not repeat here. 2. legal operation suggestions (I) Clause Design The new crown epidemic has highlighted the importance of the formulation of force majeure clauses in contracts, and it is recommended that enterprises summarize and revise the force majeure clauses in contracts in a timely manner. The scope and consequences of force majeure can be agreed in the contract, and the risks that may be encountered can be considered and excluded in the force majeure clause, depending on the characteristics of the industry, the business model and the market involved. (II) timely notification When the new crown epidemic affects the performance of the contract, the enterprise shall promptly notify the other party, the content of the notice may include the claim of force majeure, the time, scope and extent of the impact of the epidemic, and what mitigation measures have been taken. It should be noted that the notification is not once and for all. The company should continue to notify the other party of the relevant situation at the corresponding time node, so that the other party can obtain the necessary time to take measures to reduce the loss, otherwise it will expand part of the loss and may still be liable. (III) fixed evidence Enterprises affected by the epidemic shall provide proof within a reasonable period of time, and even if the proof cannot be provided in a timely manner due to force majeure, they shall fix the evidence and provide proof as soon as possible within a reasonable time after the effect of force majeure has been reduced or disappeared. The scope of the form of proof is relatively broad, and the obligation to provide proof is not absolute in law, such as the closure of the city measures and the initiation of a local response and other important events, can be inquired through the relevant channels. It is recommended that enterprises pay attention to the retention of proof documents of force majeure (such as government notices, announcements, etc.), the sending records of notices, the other party's approval of force majeure and measures taken to reduce the impact of force majeure, the enterprise itself due to the impact of the epidemic and its prevention and control measures to stop production and sales or the sharp increase in operating costs and other evidence materials, in a dispute between the two parties in a timely manner to obtain lawyers, legal counsel and other professionals. (IV) positive impairment Enterprises should take timely mitigation measures after the epidemic situation leads to failure to perform or knows that the contract is affected by the epidemic situation, such as timely notifying the other party and related parties to suspend investment in people, money and materials, negotiating to change the delivery method, extending the delivery period, timely handling of vulnerable and consumable subject matter, etc., so as to prevent the loss of the other party and other related parties from expanding and avoid increasing their own responsibilities. (V) classification assessment 1. Comprehensively review the various types of contract documents that are being performed and comprehensively assess the impact of the epidemic, especially on its own ability to perform and the ability of the counterparty to perform. Assess whether to continue to perform, change or terminate the contract in the light of your own business needs and actual conditions, and avoid a one-size-fits-all approach. 2. For contracts to be signed in the near future, full consideration should be given to the performance of the contract by the epidemic and the control of the epidemic, including but not limited to the time of performance, the policy requirements of local governments, the development trend of the epidemic, the nature of the commodity, the purpose of the transaction, and the possible impact. 3. Taking into account the recurrence of the new crown epidemic, it is recommended that the contract signed after the new crown epidemic should clearly agree on the new crown epidemic and its prevention and control measures as force majeure and assess its impact and consequences, and if it is really impossible to assess, a reasonable exemption clause and a relatively flexible agreement change and termination clause should be set. Attachment: Excerpts from Legal Provisions and Guiding Opinions of the Supreme Court the People's Republic of China Civil Code Article 590: "If one of the parties is unable to perform the contract due to force majeure, it shall be exempted from liability in part or in whole according to the effect of force majeure, unless otherwise provided by law." Article 563: "The parties may terminate the contract under any of the following circumstances: (1) the purpose of the contract cannot be achieved due to force majeure". (I) of the Guiding Opinions of the Supreme People's Court on Several Issues concerning the Proper Trial of Civil Cases Involving the COVID-19 Epidemic 3. properly hear contract dispute cases in accordance with the law. Unless otherwise agreed by the parties, when applying the law, the impact of the epidemic on different regions, different industries and different cases shall be comprehensively considered to accurately grasp the causal relationship between the epidemic or the epidemic prevention and control measures and the failure to perform the contract, and the following rules shall be followed for handling the cases of contract disputes arising from the direct impact of the epidemic or the epidemic prevention and control measures: If the contract cannot be performed as a direct result of the (I) of an epidemic or epidemic prevention and control measures, the provisions of force majeure shall be applied in accordance with the law, and the liability shall be partially or fully exempted according to the extent of the impact of the epidemic or epidemic prevention and control measures. If the parties are responsible for the failure to perform the contract or the expansion of the loss, they shall bear the corresponding liability in accordance with the law. If the parties claim that they have fulfilled their obligation of timely notification due to the epidemic situation or the epidemic prevention and control measures cannot fulfill their contractual obligations, they shall bear the corresponding burden of proof. If the (II) epidemic or epidemic prevention and control measures only lead to difficulties in the performance of the contract, the parties may renegotiate; if they can continue to perform, the people's court shall effectively strengthen the mediation work and actively guide the parties to continue to perform. If the parties request to terminate the contract on the grounds that it is difficult to perform the contract, the people's court shall not support it. If the continued performance of the contract is obviously unfair to a party, and its request to change the period of performance of the contract, the method of performance, the amount of the price, etc., the people's court shall decide whether to support it in the light of the actual circumstances of the case. If, after the contract is changed in accordance with the law, the parties still claim partial or total exemption from liability, the people's court shall not support it. If the purpose of the contract cannot be achieved due to the epidemic or the epidemic prevention and control measures, the people's court shall support the request of the parties to terminate the contract. (II) of the Guiding Opinions of the Supreme People's Court on Several Issues concerning the Proper Trial of Civil Cases Involving the COVID-19 Epidemic Trial of (I) contract cases 1. If the epidemic or epidemic prevention and control measures cause the parties to fail to perform the contract of sale and purchase in accordance with the agreed time limit or the cost of performance increases, the continued performance does not affect the realization of the purpose of the contract, and the parties request the termination of the contract, the people's court shall not support it. If the epidemic situation or epidemic prevention and control measures cause the seller to fail to complete the order or deliver the goods within the agreed time limit, and the buyer's contract purpose cannot be realized by continuing to perform, and the buyer requests to terminate the contract and return the advance payment or deposit that has been paid, the people's court shall support it; if the buyer requests the seller to bear the liability for breach of contract, the people's court shall not support it. 2. If the sales contract can continue to be performed, but the epidemic situation or epidemic prevention and control measures lead to a significant increase in labor, raw materials, logistics and other performance costs, or lead to a substantial price reduction of products, and it is obviously unfair to one party to continue to perform the contract. If the adversely affected party requests to adjust the price, the people's court shall adjust the price according to the actual situation of the case and in accordance with the principle of fairness. If the epidemic or epidemic prevention and control measures cause the seller to fail to deliver in accordance with the agreed time limit, or cause the buyer to fail to pay in accordance with the agreed time limit, and the parties request to change the time limit for performance, the people's court shall, in the light of the actual situation of the case, change the time limit for performance in accordance with the principle of fairness. If the contract has been changed by adjusting the price, changing the time limit for performance, etc., and the parties request the other party to bear the liability for breach of contract, the people's court shall not support it.</关于依法妥善审理涉新冠肺炎疫情民事案件若干问题的指导意见（二）>

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