Statutory elements of force majeure

4.1 Event elements

Force majeure refers to objective events and their consequences that cannot be foreseen, avoided or overcome, resulting in the inability to perform a contract in accordance with the contract agreement.

The Interpretation of the Contract Law of the People’s Republic of China (Legal Publishing House, 8th edition, 2009), compiled by the Legal Affairs Commission of the Standing Committee of the National People’s Congress, believes that force majeure refers to objective circumstances such as natural disasters and wars that are unforeseeable when the parties enter into a contract, whose occurrence is inevitable and beyond human control. The United Nations Convention on Contracts for the International Sale of Goods (“CISG”) stipulates that objectivity is reflected in the “uncontrollable” element in Article 79, that is, the occurrence of force majeure events is not under the control of the parties. The most common force majeure events include natural disasters and social events, but also some administrative actions and other factors, such as commercial third-party factors related to the contract. The epidemic is the basis for specific objective events that lead to non-performance.

[Lawyer’s tips] The parties may need to provide relevant certification documents about the epidemic. The attorney can collect official notices, announcements, reports from credible news media issued by government departments, inspection and quarantine agencies, etc., or apply to relevant units for force majeure certificates. On January 30, 2020, the China Council for the Promotion of International Trade announced the work of issuing the “Proof of Force Majeure”. However, lawyers should note that such a certificate is only one aspect of the force majeure defense. In practice, foreign commercial entities have different reactions to the “Proof of Force Majeure”. It is recommended that attorneys collect evidence from multiple aspects and dimensions, and pay close attention to the policies and attitudes of commercial entities in the importing country towards the “Proof of Force Majeure”.

4.2 Unforeseeability

The foreseeability element is strictly speaking that the party did not foresee it. Therefore, in terms of the new pneumonia epidemic, the application premise of this constituent element is that the party claiming force majeure needs to prove that when entering into the contract, it did not foresee that the events caused by the epidemic directly led to its inability to perform.

[Lawyer’s tips] Generally speaking, attorneys can explain the unforeseeability of the epidemic through common sense. However, the impact of the epidemic on performance requires the attorney to judge it in combination with the general public’s ability to foresee and subjective conditions such as the age, knowledge level and technical ability of the parties. In addition, since the first outbreak of the COVID-19 pandemic has been three years, domestic and foreign media have reported more and more comprehensively on the local COVID-19 pandemic. Lawyers can also compare the time of occurrence of the event caused by the epidemic and the time of news released by the more influential local news media, and objectively explain whether it is unforeseeable.

4.3 Unavoidable elements

What cannot be avoided should be the event that causes it to be unable to perform, rather than any objective situation. For example, if the place of production of the sales contract is in an area where no control measures have been taken to prevent the epidemic, then the exporting company should be able to avoid the objective situation that causes it to be unable to perform. Unavoidable also refers to the consequences caused by the event, that is, the event may be unavoidable, but if the performance obstacles caused by it can be avoided, then it does not constitute force majeure. For example, the prevention and control measures caused by the epidemic have hindered production, but the inventory is sufficient to deliver part or all of the contract. When there are no other factors affecting delivery, the exporting company should deliver these inventories to perform the contract, which is to avoid the consequences.

[Lawyer’s tips] Unavoidable means that the event that leads to non-performance is inevitable. In addition to judging the inevitability of the event in combination with relevant facts, the attorney should also judge and analyze the causal relationship between the inevitability of the event and the failure to perform the relevant obligations.

4.4 Insurmountable elements

The insurmountable element is the criterion for judging whether force majeure is objectively constituted. This standard also judges whether the parties subjectively, in accordance with the principle of good faith, try their best to overcome the consequences caused by force majeure. This overcoming includes both overcoming the consequences so that the contract can be fully and correctly performed, and overcoming the consequences of force majeure that the parties try their best to reduce in quantity. It should be noted here that objective circumstances that cannot be foreseen or avoided may not be insurmountable or the consequences cannot be overcome. For example, when the contract does not specify the source of goods or the designated manufacturer – especially when the exporting enterprise is a trader, if there are other supply places, the exporting enterprise should be able to supply goods in areas that are not under epidemic control. Although such supply causes inconvenience and increased costs to the exporting enterprise, the consequences of non-performance can be overcome through alternative procurement. In addition, combined with the 4.3 unavoidable requirement, the insurmountable requirement also requires that the parties have made every effort and taken all possible measures, but still cannot avoid the occurrence of a certain event and cannot overcome the damage caused by the event.

[Lawyer’s tips] Insurmountable means that the objective result of failure to perform obligations cannot be overcome. Therefore, the agent lawyer needs to carefully grasp the remedial measures taken by the parties to perform relevant obligations when responding to the relevant events, and the necessary extent of the remedial measures should be grasped according to the objective situation of the parties and the rationality of the measures. The so-called “efforts” and “measures” refer to legal acts that are recognized as economic means, and do not include immoral, illegal and criminal acts. In practice, when lawyers measure the standard of the degree of economic means, they can refer to the comparison between the debtor’s performance costs and the creditor’s benefits to determine the minimum standard of insurmountability when the debtor tries his best to a certain extent.

4.5 Time requirements

In addition to the aforementioned foreseeable time point, the time requirement is that the force majeure must occur within the performance period, and the export enterprise does not constitute a delay in performance when the force majeure occurs. For example, the agreed delivery date is October 2019, but the performance period has passed and the goods have not been delivered. The export enterprise claims in January 2020 that it cannot perform due to force majeure, which obviously does not meet the time element of force majeure.

[Lawyer’s tips] In judging whether force majeure is established, the agent lawyer should not only evaluate and judge the aforementioned “three no” elements, but also grasp the time when the force majeure event occurs, and should provide necessary evidence to make it clear that the force majeure occurs during the performance period of the relevant obligations.

4.6 Consequences

The inability to perform due to force majeure is the inability to perform all or part of the contract. The so-called inability to perform means that there is no possibility of performance as agreed objectively. For example: If the contract stipulates that the delivery date is from February 1 to February 7, 2020, the goods should be transported from Wuhan to the port during this period, but because Wuhan is “closed” and there are no transportation conditions, it is impossible to deliver on time.

[Lawyer’s tips] The inability to perform due to force majeure is not limited to the objective occurrence of the inability to perform, but also includes the possibility of no longer having the obligation to perform due to force majeure. When handling contractual relationships, attorneys should pay attention to the fact that the latter can also apply force majeure clauses.

4.7 Causation requirements

The objective fact of force majeure must have a direct causal relationship with the consequence of the inability to perform. The epidemic itself may be difficult to constitute a direct causal relationship with the inability to perform. The so-called causal relationship must be based on the following basis: the event directly leads to the inability to perform. Taking the above 4.6 consequence requirements as an example, the epidemic is not the direct cause of the inability to transport, but the inability to transport caused by the “city lockdown order” is the direct cause of the inability to perform.

[Lawyer’s tips] When attorneys apply force majeure to handle contractual relationships, they must pay attention to using the causal relationship requirements to judge the pending events regarding the claim of force majeure, and pay attention to whether the event has a direct causal relationship with the objective consequence of the inability to perform. In practice, in addition to the export enterprises being hindered from performing their obligations due to force majeure events, import enterprises (buyers) will also raise force majeure as a defense in an attempt to circumvent their obligations that should be performed or delay the performance of their obligations. For example, in some countries with relatively unstable economic and financial policies, the central bank of the country restricts the country’s import enterprises from making large foreign exchange payments due to domestic inflation caused by the COVID-19 pandemic. In this case, the epidemic is not the direct cause of the buyer’s failure to perform its payment obligations on time and in full, but the restrictive policy of the central bank of the country is the direct cause of its failure to perform. At this time, on the one hand, the attorney needs to carefully identify and judge whether there is a direct causal relationship between the objective facts and the inability to perform, and on the other hand, he must pay attention to the relevant national policies of the importing country at any time and respond flexibly.