08

2020

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02

Is the epidemic situation of COVID-19 a force majeure? How can enterprises and individuals respond in accordance with the law?

At the intersection of winter and spring this year, since the beginning of Wuhan, the pneumonia epidemic caused by novel coronavirus has broken out in a large area (hereinafter referred to as "COVID-19 epidemic"), and the performance of a large number of civil and commercial contracts and the rights and interests of individuals have also been more or less affected. Whether "COVID-19 epidemic" is a force majeure and how enterprises and individuals should respond according to law have become a hot topic of concern, Below, we will make the following legal analysis on the issues of concern to everyone, for comparison and reference.


Is the epidemic situation of COVID-19 a force majeure? How can enterprises and individuals respond in accordance with the law?

 

 

 

Author: Tiancheng Legal Lawyer Team (Li Guanghan, Wang Zhijian, Huang Xueying, Guo Yinyin)

 

 

 

Unit: Guangdong Legal Shengbang Law Firm

 

 

 

 

At the intersection of winter and spring this year, since the beginning of Wuhan, the pneumonia epidemic caused by novel coronavirus has broken out in a large area (hereinafter referred to as "COVID-19 epidemic"), and the performance of a large number of civil and commercial contracts and the rights and interests of individuals have also been more or less affected. Whether "COVID-19 epidemic" is a force majeure and how enterprises and individuals should respond according to law have become a hot topic of concern, Below, we will make the following legal analysis on the issues of concern to everyone, for comparison and reference.

 

 

 

1、 What is' force majeure '?

 

Article 117 of the Contract Law stipulates that force majeure refers to objective circumstances that are unforeseeable, unavoidable, and insurmountable. The concept of force majeure in Article 180 of the General Principles of the Civil Law also follows the aforementioned provisions of the Contract Law. Force majeure mainly includes natural disasters (such as typhoons, floods, earthquakes, etc.) and social abnormal events (such as wars, strikes, riots, international or domestic transportation interruptions, epidemics, and other events recognized as force majeure according to Chinese law or general international business practices).

2、 The legal nature of "COVID-19 pneumonia". Is "COVID-19" force majeure?

"COVID-19 pneumonia" has been recognized by the National Health Commission as the legal nature of Class B infectious diseases in line with the provisions of the Law on the Prevention and Treatment of Infectious Diseases, and the prevention and control measures of Class A infectious diseases have been taken. Therefore, "COVID-19" is a factual legal event, that is, the "objective situation" referred to in the General Principles of the Civil Law and the Contract Law.

However, to judge whether the "objective situation" of the "COVID-19" is force majeure, it mainly needs to be analyzed from three dimensions in theory. Is the party involved in the epidemic unpredictable? Can the parties involved in this epidemic not be avoided? Can the parties involved in this epidemic not overcome it?

Government departments at all levels have successively taken the most comprehensive and strict prevention and control measures in response to the epidemic, including "city lockdown", implementation of traffic control, construction of a "grid" epidemic prevention and control network for "external prevention of input and internal prevention of transmission", mandatory centralized diagnosis and treatment of confirmed and suspected cases, centralized isolation and observation of close contacts with confirmed and suspected cases, extension of holidays and postponement of resumption of work nationwide Administrative action based prevention and control measures such as production suspension are unforeseeable, unavoidable, and insurmountable when the parties enter into a contract to prevent and control administrative actions and virus transmission, and are considered force majeure.

In view of the commonness between the "COVID-19" and the "SARS" epidemic in China in 2003, we can refer to the legal nature of the "SARS" epidemic determined by people's courts at all levels at that time. The Notice of the Supreme People's Court on Doing a Good Job in the Relevant Trial and Implementation of the People's Court in accordance with the Law during the Prevention and Control of Infectious SARS and the effective judgment of the relevant disputes at that time all recognized the SARS epidemic as a force majeure category. Although the notice has been invalid, the judgment spirit embodied in it can be used for reference in determining the nature of the COVID-19.

In addition, the China Council for the Promotion of International Trade issued a notice on January 30, 2020, stating that according to the provisions of the Constitution of the China Council for the Promotion of International Trade approved by the State Council, the China Council for the Promotion of International Trade and its local branches and sub councils can be affected by the pneumonia epidemic caused by novel coronavirus, It can be seen that the China Council for the Promotion of International Trade also considers the "COVID-19" as a category of force majeure.

It appears that this "COVID-19 epidemic" is an unforeseeable, unavoidable and insurmountable "objective situation", which is in line with the force majeure situation in the sense of the General Principles of the Civil Law and the Contract Law.

3、 Can the commercial subjects and individuals involved in the existence of the force majeure event of the "COVID-19" be exempted or relieved of their responsibilities?

The answer is that specific questions should be analyzed in detail.

The existence of force majeure events does not necessarily exempt the commercial subjects and individuals involved from liability.

If at the time of conclusion of the contract, it was foreseen that the "COVID-19" epidemic might occur, or if the contract was signed after the outbreak of the "COVID-19" epidemic, the "COVID-19" epidemic would not constitute a "force majeure" event for the contract. In addition, according to Article 117 of the Contract Law, if the parties have delayed their performance before the outbreak of the "COVID-19 epidemic", they cannot claim exemption from liability on the grounds of "force majeure" events, but should still bear the liability for breach of contract as agreed in the contract.

The sudden outbreak of epidemic prevention and control measures, as well as large-scale restrictions on personnel mobility, have made it a hot topic of high concern for all sectors of society whether housing rent should be reduced or even terminated.

During the epidemic prevention and control period, neither the lessor nor the lessee is at fault. If this causes the lessee to be completely unable to use, the rent during the period can be waived. For those who are still using leased property for operation, a specific analysis should be conducted on the impact and causal relationship of the epidemic on their operations. Therefore, partial rent reduction should be considered as appropriate. The effective judgments made by people's courts at all levels during the SARS epidemic also confirmed the spirit of this judgment.

When it comes to whether the epidemic in a specific case belongs to force majeure and whether it can result in legal consequences for the parties to be exempted from liability, the parties must also fully prove that they are not at fault, and there is a causal relationship between the force majeure event and the consequences of the inability to perform the contract, which leads to the inability to perform the contract, the force majeure event can only become a cause of exemption.

4、 The parties to the contract shall promptly fulfill their obligations to notify and prove force majeure

According to Article 118 of the Contract Law, if one party is unable to perform the contract due to force majeure, it shall promptly notify the other party to mitigate potential losses to the other party, and shall provide proof within a reasonable period of time. Therefore, when the parties are unable to fulfill the contract due to the impact of the epidemic, they have the obligation to notify and provide evidence to mitigate potential losses to the other party, and should provide proof within a reasonable period of time. At the same time, appropriate measures should be taken to prevent the expansion of losses, otherwise, the obligor should bear corresponding responsibilities.

5、 Measures taken by enterprises and individuals to deal with the force majeure event of "COVID-19" epidemic

 1、 Measures taken by domestic enterprises and individuals to fulfill domestic contracts:

(1) Individuals or target enterprises conduct special "legal examinations" on the contracts involved, either by themselves or by hiring a third-party agency (usually a law firm), to determine whether the performance of the contracts will be affected by the epidemic, such as whether they can deliver, complete or fulfill payment obligations on time according to the contract agreement; On an individual level, the main review includes contracts related to labor relations, housing rental relationships, tourism service contracts, and second-hand housing sales contracts between enterprises and individuals;

(2) If it is determined through a "legal medical examination" that the performance of the contract has been affected by the epidemic, individuals or enterprises should send a written notice to the other party of the contract as soon as possible (the notice should be in accordance with the legal method, and the evidence of the notice should be fixed. When notifying through WeChat, attention should be paid to retaining the original carrier of the mobile phone for the convenience of the court to view in court, otherwise, the evidence provided may not be accepted by the court), Provide a clear explanation and submit supporting documents regarding the inability to fulfill the contract as agreed, and both parties shall negotiate a change or termination of the contract.

The supporting documents that should be submitted include but are not limited to the first level response of relevant government departments to major public health emergencies issued by this epidemic, administrative instructions for extending the Spring Festival holiday and/or delaying the resumption of work for enterprises, resumption of production/traffic control/restriction of personnel movement, announcements, hospitalization certificates, diagnostic certificates, discharge certificates, and quarantine observation certificates.

According to the newly revised rules on civil evidence, government notices and announcements can be directly printed and submitted on government websites as electronic data originals.

2、Measures taken by domestic enterprises to fulfill international trade contracts (including Hong Kong, Macao, and Taiwan):

In addition to the response measures mentioned in point 1 above, if the performance of the contract involves international trade (including Hong Kong, Macao, and Taiwan), the enterprise must also apply to the China Council for the Promotion of International Trade branch in its own location for a proof of force majeure, which will serve as evidence that the epidemic constitutes "force majeure".

At present, most CCPIT committees accept online acceptance, online audit, online free processing, rapid certification, and mail delivery, and can obtain the certificate of fact of force majeure of "COVID-19" without going out. The supporting materials required mainly include certificates/announcements issued by the government or institutions where the enterprise is located, notices/certificates related to sea, land, and air transportation delays, flight extensions, cancellations, etc., export goods sales contracts, cargo booking agreements, freight agency agreements, customs declarations, and other materials that can be provided. We understand that some CCPIT can also issue a certificate of fact of force majeure for domestic enterprises to perform domestic contracts, but we believe that domestic enterprises generally do not need to apply for the local CCPIT to issue a certificate of fact of force majeure for the performance of domestic contracts, and only need to submit documents according to the response measures mentioned in point 1 above.

To sum up, in practice, whether the force majeure rule can be applied to the "COVID-19" requires a strict comprehensive review based on the actual case of the specific dispute, the purpose of the contract in the specific contractual relationship, performance, causality, etc. After the occurrence of force majeure, one party should actively perform the notification obligation, propose reasonable and legitimate appeals and appropriate solutions, and reduce the continued expansion of losses.

Due to the epidemic and the prevention and control of commercial risks and losses caused by the epidemic, we should treat them rationally, on the basis of mutual understanding and accommodation, fairly, reasonably, and legally bear risks and share losses, overcome difficulties together, and overcome difficulties together.