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Force Majeure and Coronavirus (I)

posted 5 years ago

A&Z Law Firm 


A&Z and Studio Tosato Attorneys are working together to provide companies solutions with special reference to force majeure on international contracts when an international instrument, such as CISG, or a domestic law such as PRC, Italian and Spanish Law are applicable.

Companies are advised to review the provisions of their contracts to determine whether the impact of the coronavirus may constitute a force majeure event. Should the affected enterprises be liable for breach of contract? Is delayed performance or contract termination allowed? Our attorneys look at this situation and offer some recommendations in this and coming articles.


Impact of Travel & Shipping Restrictions

As a consequence of the spread during the past few weeks of the coronavirus (SARS-CoV-2) in China, the World Health Organization (“WHO”) announced the situation as a “Public Health Emergency of International Concern”. Given the global nature of the Coronavirus, several cities and regions across China have announced travel and shipping restrictions resulting in full or partial lockdowns. Besides, many countries have also closed their borders to arrivals from China to contain the spread of the coronavirus.

These measures are causing enormous concerns to enterprises operating in and with China. Under such situation, many companies may face severe disruptions in the production, logistics (both inbound and outbound shipments), international services, and other aspects of their operations resulting in delays or failure to fulfill contractual obligations. Consequently, unplanned and heavy financial burdens affect all companies, although SMEs suffer the most.

CCPIT offers force majeure certificates

China Council for the Promotion of International Trade (“CCPIT”) announced on 30 January 2020 that it would offer force majeure certificates to help companies dealing with disputes with foreign trading partners arising from epidemic control measures. The first coronavirus pneumonia force majeure certificate was issued to an auto parts manufacturer in Huzhou city, Zhejiang province, on February 2, 2020. The force majeure certificate can be applied online (Visit website www.rzccpit.com).

Based on international practice, most international contracts contain a force majeure clause, which is a clause that relieves a party from its obligations to perform the contract in certain extreme circumstances. Some contracts specifically include wording such as “outbreak of disease”, “earthquake”, “civil emergency” or similar in their force majeure clauses. However, if the specific event is not explicitly provided for in the contract, the party seeking to rely on the force majeure provision will need to consider the wording of the clause carefully to determine whether any disruptions as a result of the coronavirus might be considered a force majeure event.

If the contract does not provide force majeure protection, the law governing the contract will dictate what constitutes force majeure. Obviously, this may vary across each jurisdiction.

Does coronavirus constitute force majeure?

A force majeure clause generally provides for what happens in case of specified events or incidents beyond the control of either party after entering into the contract. This generally applies to radical and external events that are not due to the fault of either party, such as natural disasters, outbreaks of war and strikes.

A force majeure clause can provide for different consequences upon a stipulated event in addition to the contract termination, such as an extension of time for performance, or variation to the contract.

Whether or not the outbreak of coronavirus will constitute force majeure in a contract, some key questions must be considered:

(i) Firstly, it is necessary to check if the event (in the case under consideration, the event would be the outbreak of an epidemic) is specifically mentioned as a force majeure event in the contract. Even if so, it may still need to satisfy other requirements to constitute force majeure. If not, it may nevertheless be covered under other wording of the clause.

(ii) Foreseeability: Most contracts exclude events that could have reasonably been avoided or overcome.

In general, the outbreak of epidemics may not be seen as an unforeseeable event, but with regard to the coronavirus case, the resulting and unprecedented government restrictions could differentiate the coronavirus from other epidemics. In fact, it is likely that the courts would accept that this outbreak and the response took to such does not constitute a foreseeable contingency so that reasonable steps could have been taken by the party affected by it.

Besides that, the recognition by the said WHO’s declaration of the virus outbreak as a Public Health Emergency of International Concern is appropriate to show the severity and unforeseeable nature of this event.

(iii) Causation:  It is central to check if coronavirus in fact “caused” the non-performance. The party seeking to rely on force majeure must then usually establish that the event has prevented or hindered them from the performance of the contract. Depending on the exact words used in the contract, the affected party must demonstrate that performance is legally or practically impossible, not just difficult or more costly.

(iv) Mitigation duties : The party claiming force majeure relief is usually under a duty to show that it has used its reasonable endeavors to prevent, or at least mitigate, the effects of the force majeure event.  Force majeure relief will not often be available to assist the impact of events that could have been avoided or mitigated.

(v) Notice requirements: Almost all force majeure clauses require that notice be given of the force majeure event. If a notice of force majeure is to be given, it should be issued in line with the provisions of the contract. Failure to do so may result in the affected party not being able to rely on the force majeure clause or claim relief from the impact of the force majeure event.

(vi) Consequences: The effect of a force majeure clause may differ from contract to contract. Some clauses operate to suspend obligations during the period of the applicable event, some others give rise to a right to terminate and some others may relieve the non-performing party of liability.

Coronavirus event affects your contract: what measures might be taken? Companies must review the provisions of their contracts to determine whether the impact of the outbreak of Coronavirus may constitute a force majeure event under a specific contract. It is advisable to confirm with knowledgeable attorneys. Meanwhile, the following measures might be taken by companies suffering from or concerned about potential business disruption due to Coronavirus epidemic: 

1. Assess the impact on the contract performance. Coronavirus does not necessarily exempt the whole liabilities for breach of contract in most cases. The liability exemption should be dealt with differently depending on the extent of the event in the specific case and the difficulties imposed on the performing parties. 

2. Send notice to the counterparty to confirm the facts and propose appropriate solutions in case the party affected has assessed that it is impossible to fulfill the contract due to the coronavirus outbreak. 

3. Take immediate and effective appropriate mitigation steps to prevent the increase in the losses.

4. Obtain information and evidence regarding the issue (certificates of force majeure/announcements issued by the local governments or institutions; notices on delay or cancellation of transportation; custom declarations, etc.).

5. Proactively negotiate with counterparties.


This content is of a general nature only. For more information or advice on the above subject or analysis of other issues, please contact our attorneys. Our Firms remain at your disposal.

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