Answers to hot questions about contract performance during the epidemic

The epidemic of COVID-19 has spread all over the world and has had a significant negative impact on all walks of life. Can we directly identify this situation as force majeure and then confirm that the contract performance responsibility affected by the epidemic can be exempted? This is a problem that many of our enterprises face directly.

We believe that if the contract cannot be performed directly due to the administrative measures taken by the government to prevent and control the epidemic, or if the contract cannot be performed due to the impact of the epidemic, we can invoke "force majeure" to claim partial or full exemption from liability.

The COVID-19 epidemic was identified as a public health emergency, and the government has taken corresponding prevention and control measures to protect public health. For the affected parties, it is obviously unpredictable when concluding the contract, and it is unavoidable and insurmountable during the performance of the contract, so it should be identified as force majeure in nature. We have noticed that the relevant government departments and units have issued a notice that they can issue a factual proof of force majeure.

However, although this fact can prove that whether a specific contract can be exempted or not should be strictly confirmed according to the time of signing the contract, the purpose of signing the contract, and the performance of the contract. According to the provisions of the Contract Law, if performance is delayed due to objective reasons such as traffic control, personnel control, production and work resumption restrictions after the outbreak of the epidemic, you can claim the defense of force majeure and perform obligations in accordance with the law, reduce or exempt the liability of the defaulting party, so as to safeguard your legitimate rights and interests. At the same time, since "force majeure" is a statutory exemption clause, even if the parties have not agreed on a force majeure clause in the contract or agreed to exclude force majeure from the exemption, if the conditions are met, it will not affect the direct use of legal provisions to claim exemption from force majeure. However, in some cases, the responsibility of the defaulting party will certainly be reduced or exempted, not because the COVID-19 epidemic is force majeure:

（1） If the epidemic prevention and control measures take place after the parties delay the performance of the contract, they cannot be exempted from their liability for breach of contract, and the non breaching party can still require the breaching party to bear the liability for breach of contract, including continued performance, remedial measures, compensation for losses, etc.

（2） Although the failure to perform the contract occurred during the COVID-19 epidemic, the reason for the failure to perform the contract is not the epidemic prevention and control or the direct impact of the epidemic, nor can it exempt the responsibility.

（3） At present, the COVID-19 epidemic has been effectively controlled, and the first level response to the epidemic prevention and control has also been gradually downgraded. The resumption of production and work has been carried out in an orderly manner, which means that the situation of force majeure has disappeared. If the other party breaches the contract in this case, the observant party can deal with it according to the agreed liability for breach of contract, and the defaulting party cannot be exempted from liability.

（4） In case of malicious breach of contract under the pretext of epidemic situation, that is, the existence of epidemic situation does not have a fundamental impact on the performance of the contract, the non breaching party can check the notice and supporting materials of the opposite party, understand the development of epidemic situation in the place where the opposite party is located, and the specific restrictions of government prevention and control measures on the performance of the contract, so as to judge the material impact and losses suffered by the party, Further, it can claim the relevant liability of the defaulting party for malicious breach of contract.

（5） Unless the other party agrees, the delay in the performance of the monetary obligation formed by the loan contract shall not be exempted from liability due to force majeure. The debtor's claim for exemption from the liability for interest and other economic losses arising from delayed payment due to the COVID-19 epidemic will generally not be supported.

In addition to the above cases of breach of contract defended by force majeure, the Contract Law also sets corresponding notification obligations for one party to invoke force majeure. Article 118 of the Contract Law stipulates that if one party is unable to perform the contract due to force majeure, it shall notify the other party in a timely manner to mitigate the losses that may be caused to the other party, And shall provide evidence within a reasonable period of time. Therefore, when the contract cannot be performed due to force majeure, the parties to the contract shall also perform the notification obligation in a timely manner according to the law:

(1) Collection of supporting materials: In order to prove the existence of force majeure, relevant evidence can be collected by the following ways: 1. The announcement of the government and relevant departments announcing the launch of the first level response to major public health emergencies, and the documents issued by the central and local authorities on epidemic information notification, traffic control, extended holidays and resumption time; 2. Relevant supporting documents for the contract subject to seek medical treatment due to confirmed pneumonia or suspected cases; 3. Relevant factual supporting documents obtained through application to CCPIT; 4. A statement on the impact of the epidemic on the performance of the contract and other relevant supporting documents issued by the parties to the contract and their related parties.

(2) Notification time: notify the other party of the contract as early as possible after confirming the outbreak of the epidemic, that is, the local government initiates the first level response to major public health emergencies. When the epidemic situation is determined to be a force majeure event, the relevant information should be obtained through relevant news reports, notices issued by the local government and other channels, rather than obtaining official supporting documents.

(3) Notification method: the notification after confirming the outbreak of the epidemic should first be carried out in an immediate and convenient way, such as telephone, WeChat, e-mail, etc., to ensure the timeliness of information transmission. For the need of evidence preservation, the official original notice affixed with the official seal of the enterprise shall be sent by express mail at the same time of immediate notification. Relevant supporting materials should also be sent to the other party in a timely manner after collection.

Since the notification obligation is a legal obligation, if the subject, as a party affected by the epidemic that cannot perform the contract, fails to perform the notification obligation in accordance with the requirements of the above laws, it may lead to its claim of relieving the contract, terminating the performance, and relieving the liability, etc., without legal effect. After the defaulting party performs the obligation of notice, as the opposite party, the party receiving the notice of contract termination shall check whether the notice sent by the other party conforms to the legal provisions and the contract agreement, and then judge whether the reason and basis for the other party to terminate the contract are sufficient and appropriate. If there is any objection to the termination of the contract, a lawsuit shall be filed with the people's court within three months from the date of receiving the notice of termination to claim the objection. If there is no objection, the performance shall be terminated, the status quo ante shall be restored or other remedial measures shall be taken in accordance with Article 97 of the Contract Law.

The force majeure system mentioned above is mainly applicable to the situation where the contract cannot be performed. If the contract can continue to be performed after the impact of the epidemic, but continued performance will cause obvious unfairness, you can use the principle of change of circumstances to negotiate with the other party to change or terminate the contract, or you can request the court or arbitration institution to deal with it in accordance with the principle of fairness.

According to Article 26 of Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Contract Law of the People's Republic of China (II), If the continued performance of the contract is obviously unfair to one party or cannot achieve the purpose of the contract, and the party requests the people's court to change or terminate the contract, the people's court shall determine whether to change or terminate the contract according to the principle of fairness and the actual situation of the case.

Compared with the two systems of force majeure, the system of change of circumstances has certain commonalities. Force majeure mainly focuses on the issue of liability relief when the contract is affected and cannot be performed, while the system of change of circumstances more focuses on the issue of contract change or cancellation when the contract can continue to be performed but the cost of performing the contract is too large or the performance is obviously unfair to one party to the contract, Its purpose is to adjust the unfairness of rights and obligations caused by the change of objective circumstances that are not the fault of the parties and are not normal commercial risks. Therefore, under the influence of this COVID-19 epidemic, if the performance of the contract does not reach the situation where it cannot be performed, but the continued performance is obviously unfair to one of the parties, according to the change of circumstances system, the parties can negotiate to change or terminate the contract, or resort to the legal request to be handled according to the principle of fairness.

Of course, as we mentioned earlier, not all contract performance affected by the epidemic can claim relief of liability or change or terminate the contract according to the above force majeure or change of circumstances. The relevant determination also needs to consider the time of contract conclusion, the time limit for performance, and whether there is an alternative way of performance, and other comprehensive judgments. Specific problems need to be dealt with specifically.

The above is for your reference.