Review on the extraterritorial legal effect of the "Proof of Force Majeure Facts" issued by the China Council for the Promotion of International Trade

 

 

 

 

 

 

 

Author: Lawyer Li Wuzhi

 

 

 

Unit: Guangdong Legal Shengbang Law Firm

 

Background:

During the COVID-19, many import and export or logistics enterprises were deeply affected, and the performance of contracts was directly hindered, resulting in breach of contract. According to the ship tracking data compiled by Bloomberg and data intelligence company Kpler, at least five LNG ships bound for China have diverted or berthed offshore, because the novel coronavirus epidemic has limited China's ability to receive goods and reduced domestic demand.

In addition, due to insufficient manpower at the LNG receiving stations in Rudong, Dalian, and Caofeidian, PetroChina was forced to delay the unloading of multiple batches of goods, but the company has not yet announced the commencement of force majeure clauses due to the delay.

More and more people are speculating that Chinese buyers of various commodities from copper to LNG may be forced to take this extreme measure.

According to reports[1]，on February 7, 2020, French oil giant Total refused to accept a force majeure notice from a Chinese buyer of liquefied natural gas (LNG); Meanwhile, Royal Dutch Shell is also interested in stating that it will continue to execute contracts with Chinese buyers.

 

 

 

 

 

 

 

Comment:

 

 

 

 

 

 

 

1.  Proof of Force Majeure Facts

 

 

 

The China Council for the Promotion of International Trade (hereinafter referred to as the "China Council for the Promotion of International Trade"), in accordance with international trade practices and the Articles of Association of the China Council for the Promotion of International Trade, recently announced its work of issuing proof of force majeure facts, The China Council for the Promotion of International Trade (CCPIT) defines the "Proof of Force Majeure Facts" as a factual proof in the field of commercial proof, which refers to the certification of facts related to force majeure by the CCPIT and its authorized branches at the applicant's application. After the certification is issued, the parties may be partially or completely exempted from the responsibility of non performance, incomplete performance, and delayed performance of the contract.

 

In fact, the China Chamber of Commerce for the Import and Export of Textiles has also issued a notice, which can provide a "Force Majeure Fact Certificate" for member enterprises; Some local notary offices have also issued notices stating that they can issue this certificate for enterprises within their jurisdiction.

 

 

 

2.Proof of force majeure does not necessarily mean that the contract can be suspended, modified, or even terminated in individual cases.

 

 

 

Simply put, "proof of force majeure facts" cannot be directly and naturally equated with "reasons for force majeure defense". During the COVID-19 epidemic, the proof of force majeure issued by the China Council for the Promotion of International Trade is, in nature, an illustration of objective facts. However, this does not directly equate to the fact that an enterprise that has obtained this proof of fact can be exempted from performance responsibilities and obligations in handling external business, especially import and export business.

 

 

 

 

3. The proposal and adoption of the excuse for exemption from liability for "force majeure" still require comprehensive consideration in many aspects, and it is not just a simple and crude task to complete the proof based on "proof of force majeure facts".

 

 

 

The "proof of force majeure" is only one aspect of the evidence that raises the defense of "force majeure". At the same time, if an enterprise tries to raise the cause of force majeure to the counterpart of a contract during the COVID-19 epidemic, the following factors or evidence collection should also be considered:

 

（1） First of all, distinguish and clarify whether the enterprise is affected by the "COVID-19 epidemic" or the relevant orders and measures implemented by the Chinese government, or governments of other countries and regions against the "COVID-19 epidemic" (hereinafter collectively referred to as "control measures");

（2）Is there an agreement on "force majeure" in the specific contract text, and how to stipulate it;

（3） Whether the "COVID-19 epidemic" or "control measures" have a direct or indirect impact on the performance of specific contracts;

（4）To what extent does the "COVID-19 epidemic" or "control measures" affect the performance of specific contracts, whether the performance needs to be suspended temporarily, or whether it is impossible to perform at all, or the purpose of the contract cannot be achieved;

（5）Whether it is due to the impact of "COVID-19 epidemic" or "control measures", whether it is agreed to take notification measures, or whether it has fulfilled the obligation to notify the other party to the contract, including advance notification and post notification.

 

 

 

4. In the context of the Anglo American legal system, the examination of the reasons for force majeure defense is more rigorous.

 

 

 

Some foreign-related contracts, especially in overseas procurement contracts mentioned in the context of this review, are usually governed by foreign laws, with British and American law being the majority. In British and American law, the corresponding words for "force majeure" include force majeure and act of god, as explained in the "Yuanzhao Dictionary of British and American Law"

[2]，The meaning of force majeure includes not only natural forces but also human forces; And act of god only refers to natural disasters. The dictionary also mentions that the interpretation of force majeure needs to refer to the context of the document and combine it with the nature and terms of the specific document.

 

Under the Anglo American law system, the establishment of the defense of "force majeure" is examined very strictly. To sum up, if the "force majeure" clause in the contract text does not explicitly include "COVID-19 epidemic" or "control measures", then the party claiming force majeure will be difficult to get support. Therefore, usually in English and American law contract texts, force majeure clauses generally include the following aspects:

 

（1）The reasons (types) for the occurrence of force majeure;

（2）The deadline for notifying the other party after the occurrence of force majeure, the method of notification, and the supporting documents that should be submitted;

（3）Exemption from liability for force majeure and subsequent handling matters.

In common Anglo American legal system contract texts, the more detailed the force majeure clause, the better, and it is not appropriate to express it in a general manner as "this contract is subject to force majeure clause"; If the "COVID-19 epidemic" or "control measures" or "public health events" are not clearly described, then the common practice of British and American courts is to look up past cases and identify them in accordance with the basic principles of British and American law. In the famous precedent of Interladex v. Lesieur (1978) 2 Lyod's Rep. 509 [3], the case involves a CIF sale of 800 tons of Mali groundnut expert from Mali, Africa. However, due to damage to the power supply system at the Koulikoro oil extraction plant and interference in transporting peanuts by train to the factory, the seller was only able to deliver approximately 500 tons of goods. At the time of the incident, the market price of the product skyrocketed, and the buyer claimed losses from the seller. One of the defenses of the seller is the force majeure clause in Article 22 of the sales contract, which can be excerpted as follows: "Sellers shall not be responsible for delay in shipment of the goods or any part of them occasioned by any... breakdown of machinery... or any cause compounded in term 'force majeure'

 

Regarding the role of "Proof of Force Majeure Facts", Mr. Yang Liangyi also mentioned in a recent article

[4]，“Unless there is a clear provision in the force majeure clause of the contract that the validity of the certificate for force majeure events is final, the certificate is not important in international litigation and arbitration. In light of the background of this comment, Total Company does not accept notification of force majeure of Chinese enterprises, nor does it exclude it from the contract text of both parties, "COVID-19 epidemic" or "public health event" is not included in the "force majeure" clause.

 

In summary, commentators believe that it is not appropriate to simply obtain a "death free gold medal" by proving force majeure issued by the China Council for the Promotion of International Trade or its branches; However, there is no need to believe that some governments or enterprises in certain countries or regions are too pessimistic without recognizing the fact of force majeure. It is necessary to analyze and explore specific issues based on individual cases and events to better and fully safeguard their legitimate rights and interests.