Impact of the coronavirus outbreak on contract performance-guidance on the application of force majeure clauses.

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Since the outbreak of the new coronavirus epidemic, governments at all levels have introduced a number of prevention and control measures, such as extending holidays, delaying the resumption of work, traffic control, etc. These measures have effectively controlled the spread of the epidemic, but also have an impact on the performance of many civil and commercial contracts. In addition, the internal and external evidence of force majeure affecting the performance of the contract is fixed to the negotiation between the parties to the contract or the future litigation has a key role, hoping to be helpful to the reader.
 

1. does this outbreak constitute force majeure?
 

The provisions on force majeure in China's civil and commercial laws were first introduced in the the People's Republic of China Economic Contract Law of 1981 (which has been repealed), and many existing laws also have provisions containing force majeure, of which Article 180 of the General Principles of the the People's Republic of China Civil Law and Article 117 of the the People's Republic of China Contract Law (hereinafter referred to as the Contract Law) specifically stipulate the concept of force majeure, that is, "objective circumstances that cannot be foreseen, avoided and overcome." In theory, it is divided into three aspects: natural disasters, government behavior and social abnormal events.

After the outbreak of this epidemic, the measures taken by the relevant departments are government actions, and government actions are also a type of force majeure that is easier to identify and prove. Especially for this epidemic, the policies issued by the government have made it clear that most enterprises suspend business and operation. Obviously, these policies cannot be foreseen by enterprises or other civil subjects when concluding contracts, and the subjects of private law cannot avoid and overcome the necessary administrative intervention of public power for social and public interests in special periods, therefore, government administrative orders and policy documents can be cited as reasons for force majeure exemption or termination of the contract.

On the other hand, with regard to whether the coronavirus outbreak itself constitutes force majeure, there is a view that the outbreak of the coronavirus is indeed unpredictable, but it is not unavoidable and insurmountable, and therefore does not belong to force majeure. The author believes that whether the impact of coronavirus on the performance of the contract can be avoided, whether it can be overcome to take the ordinary civil subject as the retrieval object, and lock in the time and situation of the conclusion and performance of the contract, otherwise it will exceed the legal requirements of the parties in the general civil and commercial contract, increase the cost of the parties for civil legal acts, so for this major virus outbreak, it can be considered as force majeure alone.

But on a practical level, invoking government actions as force majeure has an advantage over the virus outbreak itself, because official documents issued by the government are more convenient in terms of notification and certification. Therefore, it is recommended that government actions be used as force majeure when dealing with contract performance issues arising from this outbreak.

What is the impact on the legal relationship of the contract after the occurrence of force majeure in the 2?
(If there is a force majeure clause in the contract, the contract shall take precedence)
 

Failure to perform the contract (I) to force majeure

The inability to perform the contract here refers to the inability to perform and the delay in performance, such as the supply of masks that should have been sold to Jinan A pharmacy to Wuhan B hospital due to government orders, and the delay in the delivery of goods due to the shutdown of factory C. No matter what kind of situation can not perform the contract normally, it will generally trigger the liability for breach of contract. However, in the case that the contract cannot be performed normally due to force majeure, according to Article 117 of the contract Law, if the breaching party does not delay performance before the occurrence of force majeure, it can be exempted from liability. The scope of exemption is the scope of force majeure affecting the performance of the contract.

The purpose of the contract cannot be achieved (II) to force majeure.

The failure to realize the purpose of the contract due to force majeure is one of the circumstances in which the contract is terminated under Article 94 of the Contract Law, such as the cancellation of all Spring Festival gathering activities by the government, which prevents the temple fair organized by Company D from being carried out. In general, after the termination of the contract, the parties may claim restitution, other remedies and the right to claim damages, including the loss of available benefits. However, in the event of force majeure, it should still be exempted from liability.

(III) force majeure causes higher contract performance costs

If force majeure leads to an increase in the cost of a party's performance of the contract, but it is not enough to meet the conditions of inability to perform as stipulated by law, courts around the world have different conclusions on whether force majeure can be applied to this situation. The most prominent one is whether various types of commercial lease contracts can reduce or exempt rent due to suspension of business. Some courts will make a judgment based on the time of suspension and the amount of rent, there are courts applying legal principles to support partial rent relief. In this case, it is recommended to consult with the other party to explain the situation and try to reach an agreement on the issue. Of course, if the contract agrees on the relevant terms, the increased cost should be allocated or the contract should be terminated in accordance with the agreement, so the larger contract should be recommended to be drafted or reviewed by a professional lawyer.

How can 3. minimize the losses caused by force majeure?
 

(I) inform the other party in time and actively assist in stop loss

Article 118 of the Contract Law provides for the failure to perform the obligation of notification of a party to a contract, I .e. to notify the other party of the failure to perform in the manner agreed upon in the contract or in a manner available to the other party after the effect of force majeure has occurred, so that it can make arrangements accordingly. It is recommended to notify in writing in the form of a letter of notification, with relevant evidence and proof. Before the outbreak, many real estate development enterprises issued a notice of delay in delivery to the owners on the grounds of government environmental protection inspectors, claiming that the extension of the construction period was because the government environmental protection inspectors were not responsible, but they did not attach any proof. The author believes that such a notice does not of course block the responsibility, because the real estate enterprises have not fulfilled all the obligations required by law.

In addition, according to Article 119 of the Contract Law, after fulfilling the obligation of notification, it should also actively cooperate with the other party to prevent the loss from expanding in a timely manner, otherwise it may be liable for the expanded loss. Therefore, it is suggested that the other party should clearly list the stop-loss measures that need to be completed in the receipt of the notification letter.

(II) selection of subsequent arrangements according to the nature and content of the contract

After the occurrence of force majeure, the parties to the contract can choose whether to terminate the contract or terminate the contract according to the nature and content of the contract. Generally speaking, if the performance of the contract has a strong timeliness, such as various celebrations during the Spring Festival, the contract should be terminated consensually.

How do 4. design the force majeure clause in the contract?

The force majeure exemption is a statutory exemption, and even if the subject of the contract does not agree on this part, it will not affect the application when the statutory conditions are met. However, the law does not clearly list the type, type and notification of force majeure, the way, time, so the author suggests that in the contract to clarify this can also be not included in the law design into the contract, such as the agreement:

"When either party encounters natural disasters, government orders, strikes and other force majeure, resulting in significant changes in the performance conditions of the contract, the party affected by the force majeure shall take active remedial measures to minimize the other party's losses. In the event of Force Majeure after a Party's delay in performance of the Contract, such Party shall not be relieved of liability.

When the contract cannot be performed due to force majeure, the party unable to perform the contract obligations shall notify the other party in writing of the fact that the contract cannot be performed within 3 working days from the date of force majeure, and attach a certificate issued by the relevant government department and notary office at the place where the event occurred to prove the existence of force majeure; if one party fails to notify and causes the other party to lose or expand the loss, the party who fails to notify shall be responsible for the corresponding losses of the other party;

If part of the terms of this contract need to be changed due to force majeure, the parties may negotiate an agreement to further perform the contract."

In some cases, especially when the subject of one of the parties to the contract is clearly in a strong position, it may be agreed in the contract to exclude the application of the force majeure exemption. The author believes that although the force majeure exemption belongs to the statutory exemption, but still need the parties to claim to the other party, in the nature of a defense, the parties can not give up in advance, but can not choose to invoke the relevant provisions to exempt their own liability in the event of force majeure.

Finally, during this special period, we sincerely appeal to all of you to minimize the losses of all parties and properly handle the contract performance issues caused by this epidemic in a fair and reasonable manner in the spirit of mutual understanding and unity of purpose to tide over the difficulties.

Main legal provisions: (China's company law, maritime law and other laws have provisions on force majeure, but most of them are the emphasis and restatement of Article 117 of the Contract Law, which will not be listed here)

General Principles of the People's Republic of China Civil Law

Article 107

If the contract cannot be performed or the damage caused to others is caused by force majeure, the civil liability shall not be borne, except as otherwise provided by law.

General Provisions of the People's Republic of China Civil Law

Article 180

If a civil obligation cannot be performed due to force majeure, no civil liability shall be assumed. Where the law provides otherwise, such provisions shall prevail. Force majeure is an objective situation that cannot be foreseen, avoided and overcome.

the People's Republic of China Contract Law

Article 94

A party may rescind a contract under any of the following circumstances:

The (I) is unable to achieve the purpose of the contract due to force majeure;

(II) prior to the expiration of the performance period, one of the parties expressly expresses or indicates by its own conduct that it will not perform its main obligation;

(III) one of the parties delays in performance of the main obligation and fails to perform within a reasonable period of time after being urged to do so;

(IV) one of the parties delays the performance of its obligations or has other breach of contract, resulting in the failure to achieve the purpose of the contract;

(V) other circumstances prescribed by law.

Article 97

After the termination of the contract, if the performance has not been performed, the performance shall be terminated; if the performance has been performed, the parties may, in accordance with the performance and the nature of the contract, request restoration to the original state, take other remedial measures, and have the right to claim compensation for losses.

Article 110

If one of the parties fails to perform a non-monetary debt or the performance of a non-monetary debt is not in accordance with the agreement, the other party may request performance, except in one of the following circumstances:

(I) it is legally or factually impossible to perform;

The subject matter of the (II) obligation is not suitable for compulsory performance or the performance cost is too high;

The (III) creditor fails to demand performance within a reasonable period of time.

Article 117

If the contract cannot be performed due to force majeure, the liability shall be partially or fully exempted according to the influence of force majeure, except as otherwise provided by law. If force majeure occurs after the party's delay in performance, it cannot be exempted from liability. For the purposes of this Law, force majeure means unforeseeable, unavoidable and insurmountable objective circumstances.

Article 118

If one of the parties is unable to perform the contract due to force majeure, it shall promptly notify the other party in order to mitigate the losses that may be caused to the other party, and shall provide proof within a reasonable period of time.

Article 119

After one of the parties breaches the contract, the other party shall take appropriate measures to prevent the expansion of the loss; if the loss is expanded due to the failure to take appropriate measures, it shall not claim compensation for the expanded loss. The reasonable expenses incurred by the parties to prevent the expansion of losses shall be borne by the breaching party.

Article 314

If the goods are lost in the course of transport due to force majeure and the freight has not been collected, the carrier shall not require the payment of the freight; if the freight has been collected, the shipper may request the return.