Legal analysis of novel coronavirus pneumonia under international trade contract

Author of article: Lawyers of Shandong Win & Win Co. Law Firm
The arrival of the epidemic has raised questions about the performance of the contract of the majority of enterprises, or various situations such as failure to perform or refusal to perform. Our client inquires us about the provisions on force majeure, and if intend to perform contract, how to ensure the legal compliance of the conduction of company, let’s share below.

1. Epidemic Constitutes Force Majeure or not
(1) Force majeure under Chinese law
Under the premise that the signing of trade contract is applicable to the laws of the People’s Republic Of China, The General Principles Of Civil Law and Contract Law Of China clearly stipulate that force majeure refers to “unforeseeable, unavoidable and insurmountable objective conditions”. As a sudden infectious disease event, this epidemic situation has become a particularly serious public health emergency. All kinds of prevention and control measures taken by local governments due to the epidemic situation are unforeseeable, unavoidable and insurmountable, and its nature should be force majeure events.
(2) Force majeure under foreign law
When both parties sign the contract to apply foreign law, it is necessary to determine whether the epidemic situation constitutes the force majeure according the provisions of foreign law, judicial precedent and the definition, enumeration and exclusion of force majeure clauses. According to the laws and regulations of foreign countries, in the most cases, force majeure clause will be generally applicable.

2. Legal consequences of force majeure
Article 180 Of The General Principles Of Civil Law stipulates that those who are unable to perform their civil obligations due to force majeure shall not bear civil liability. Article 117 Of The Contract Law stipulates that if the contract cannot be performed due to force majeure, the responsibility shall be exempted in part or in whole according to the influence of the force majeure. Therefore, if a party fails to perform its obligations under the contract due to force majeure, the party who fails to perform the contract may be exempted from civil liability in accordance with the above force majeure clause. In addition, according to Article 94 Of The Contract Law, if the purpose of the contract cannot be achieved due to force majeure, the parties may terminate the contract.
China Council For The Promotion Of International Trade has issued a clear notice that CCPIT can issue a force majeure certificate if it is affected by the outbreak of pneumonia caused by the novel coronavirus infection and fails to fulfill the international trade contract on schedule.
Not all contracts affected by the epidemic will be exempt from all liabilities due to force majeure. According to the provisions of the Supreme Court, the court will measure the impact of the epidemic on the performance of the contract and the rights and interests of both parties to the contract, and apply the principle of fairness, such as changing the period of performance of the contract, changing part of the contract performance obligations, etc. From the fair appoint, to balance the rights and interests of the parties of the contract.

3 Management of business
(1) Violation before the outbreak of epidemic: According to the law, if force majeure occurs after the party delays the performance, the legal liability cannot be exempted. That is to say, before the outbreak of the epidemic, if the company has delayed the performance due to its own reasons, the company shall still bear the liability for breach of contract, and cannot argue the exemption of force majeure. In this case, it is necessary to communicate with the opposite party of the contract in time to reach an understanding or contract change, properly resolve disputes and avoid litigation disputes.
(2) Money liability not applicable: According to Chinese law, the liability for delaying of money debts shall not be exempted due to force majeure. That is to say, the payer is still obliged to pay on time, and shall not be exempted from the liability for interest and other economic losses caused by the delay in payment due to force majeure. Under the sales contract, as the buyer, shall timely perform the payment obligation to the seller and avoid the liability for breach of contract.
(3) Notice to other party: Article 119 of the Contract Law stipulates that if a party is unable to perform the contract due to force majeure, it shall notify the other party in time to mitigate the possible losses to the other party, and shall provide proof within a reasonable period of time. According to this provision, when the company is unable to perform as agreed due to force majeure, it shall timely notify the other party in the most effective and convenient way, so as to avoid expand the losses suffered by the other party. The company shall apply to the local CCPIT or relevant organizations for the proof of force majeure, and keep all the mail and written evidence of communication.
(4) Negotiation for changing of contract: If the company is affected by the force majeure, but the contract can continue to be performed, it shall reach an agreement with the other party on the change of the contract term and relevant contents, and in written agreement. If the other party does not agree to terminate the contract, and the purpose of the contract cannot be achieved, the company can unilaterally claim to terminate the contract and issue a notice of contract termination in accordance with the contract law.
(5) Remedial measures: If the other party does not perform the contract on the excuse of force majeure, the company shall notify the other party and give it a few days to perform even if it considers that the other party’s claim to terminate the contract is not tenable or reasonable. If the other party still fails to perform, the company may take remedial measures such as auction, sale off, etc., timely take mitigation measures, otherwise the extended loss may not be compensated.
(6) Perfect of article: The definition of force majeure shall be defined clearly, and it is suggested to list the cases of force majeure, to clarify whether the subsequent measures taken abroad will constitute force majeure, and to exempt the breaching party from the liability for breach of contract due to non-performance, incomplete performance and delay in performance caused by epidemic situation before the official announcement of the Chinese government lift the epidemic alarm.