By Yingbo (George) Wang & Xin Mu, Dentons Beijing
Since the sudden outbreak of Covid-19 pandemic, numerous central and local authorities in China have enacted policies to bailout businesses and individuals. Meanwhile some of higher people’s courts have issued opinions to guide inferior courts in their jurisdictions how to handle cases caused by or in connected with Covid-19. These opinions mainly focus on resolving disputes, e.g. disputes arising from contracts of labor, travel, rental, and applicability of clauses relating to force majeure, termination of contracts, in an amicable and gentle way.
During February 14th 2020 to June 8th 2020, based on summarizations of these opinions, the Supreme People’s Court of PRC continuously issued five Guidance Opinions.[1] Though these Guidance Opinions are not binding judicial interpretations, it is also of great significance to courts at all levels in judgment involving Covid-19 epidemics. In particular, the Guidance Opinion（III） provides the most detailed opinions on cases involving international commercial and maritime disputes.
The Guidance Opinion (III) provided principles for the application of foreign laws (especially force majeure clauses) and international conventions as well as ascertainment of these resources. It stipulates the court shall determine the applicable law in accordance with the Law of the People’s Republic of China on the Application of Laws in Civil Relations Concerning Foreign Affairs and other laws and relevant judicial interpretations. Where Chinese law is applicable, the force majeure rules shall be implemented in accordance with the Guidance Opinions of the Supreme People’s Court on the Proper Trial of Civil Cases Involving the Covid-19 Epidemic (I). If extraterritorial law is applied, the court should accurately understand the content of statutory law or case law similar to force majeure rules in such law, and cannot roughly apply the same way as the Chinese law.
When determining the application of international treaties, Article 4 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the “Law of the People’s Republic of China on the Application of Law on Civil Relations Concerning Foreign Affairs” (1) shall be abided by. For matters not in applicable treaty, the applicable laws shall be determined by conflict of law principles under Chinese law.
When the United Nations Convention on Contracts for the International Sale of Goods is applied, it should be noted that PRC has withdrawn its reservation of Article 11 of the Convention in 2013, and still remains reservation of Article 1 subparagraph 1 (b) of the Convention. Whether a country is a party to the convention and whether the country has made a reservation can be found in the official website of the United Nations Commission on International Trade Law. It should be noted that the Convention does not govern the validity of the contract and the ownership of the goods. For these two issues, the applicable law shall be selected based on conflict of law principles.
If the parties claim for partially or completely exemption from contractual liability on the grounds that they are affected by the epidemic or epidemic prevention and control measures, the court shall conduct a review regarding the conditions in accordance with the relevant provisions of Article 79 of the Convention. The provisions of the Convention should be interpreted in good faith based on the terms used in its context and with reference to the usual meaning of the object and purpose of the Convention. Besides, the UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods is not binding but can be used as a reference when adjudging the case, because it is not an integral part of the Convention.
| In holding contract of carriage of goods cases, the Guidance Opinion(III) distinguished the different situations in which contract law and maritime law apply. |
| It exempts carriers from liability for damage arising from failure to carry the goods to the agreed place via the agreed or customary route, if the carrier proves that it is necessary to promptly diagnose or isolate the patient on the vehicle, etc. during the carriage and the carrier has promptly notified the shipper. If the shipper alleges that the carrier breached the contract or violates Article 291 of the Contract Law of PRC, it shall not be upheld. Where the carrier proves delay in delivery due to reasonable deviation or quarantine measures, etc. at the loading place or the destination, and has promptly notified the shipper, the carrier’s exemption from liability of breach of contract shall be upheld. |
| Guidance Opinion (III) clarified whether the Covid-19 caused the ship to be unseaworthy. It provides that a ship had called at a port affected by the epidemic or the infection of the crew members does not necessarily cause the ship to be unseaworthy. However, in some cases, it should be deemed unseaworthy，for example, if the carrier is negligent that the ship is not suitable for carrying specific cargo due to disinfection, fumigation and other measures concerned, or the number of certified healthy crew cannot meet the seaworthiness requirements, etc. |
| Guidance Opinion (III) specifically provides that under certain circumstances, due to the impact of the epidemic, either party is entitled to terminate the contract before departure based on Article 90 of the Maritime Law: (i) the necessary crew and materials cannot be provided within a reasonable period; (ii) the ship is unable to arrive the nominated port; (iii) Once the ship enters the port, it cannot continue to sail or berth normally; (iv) the cargo is temporarily prohibited to import and export in the country or region of loading or discharging port ; ( v) the shipper is unable to transport the goods to the loading port within a reasonable period due to the obstruction of land transportation; (vi) the contract cannot be performed due to other reasons that cannot be attributed to the carrier and the shipper. |
| Due to the impact of the epidemic, Near Clause shall be supported. Unless otherwise agreed, if the shipper or consignee seek to hold the carrier liability for breach of contract, it will not be supported. However, the carrier shall, for the interest of the cargo owner, make proper arrangements for the storage of the goods after discharge and promptly notify the shipper or consignee, failure of which the carrier shall be assumed liable for damages therefrom. |
| For container demurrage due to the epidemic, if the cargo interests requests to reduce the container demurrage, the court shall help the parties to settle the case. If the negotiation fails, the court may, based on the facts, reduce demurrage in favor of the cargo interests accordingly. Generally, the substitute cost of a similar container should be used as the maximum amount of demurrage. |
| Based on the fault principle, Guidance Opinion (III) stipulates that freight forwarding companies book space in the name of the shipper with carriers, if the voyage is cancelled or changed by the carrier due to the epidemic, the freight forwarding company shall not be liable. However, the freight forwarding company shall be responsible if it fails to fulfill the agent’s due diligence and care, such as failure to notify the shipper of the cancellation or change in time, or having fault or negligent in cooperating with the shipper in dealing with the subsequent matters.
Guidance Opinion(III) stipulates that, unless otherwise stipulated in the contract, if shipyard enterprises request an extension of the delivery period based on the epidemic that cause insufficient labor, delay in the delivery of equipment and materials, and unable to resume work in a timely manner, the court may, based on the extent of the impact of the epidemic or administrative control measures on the progress of ship repair and construction, support the request accordingly at discretion. Due to the impact of the epidemic or administrative control measures, the delayed delivery of the ship results in the application of new ship construction standards, unless otherwise agreed in the contract, if the parties request to share the increased costs and expenses, the court shall comprehensively consider the epidemic or measures concerned, the impact of delayed delivery and whether there are attributable reasons for the parties’ performance of the contract, etc., and support accordingly. |
Following these Guiding Opinions, the industry is also very concerned about cases involving the Covid-19 epidemic in practice, especially the use of force majeure clauses. For this reason, we preliminarily searched the official website of the Supreme People’s Court (https://wenshu.court.gov.cn) and law.wkinfo.com.cn, but only few cases related to the epidemic are found. Few courts have cited force majeure clauses in Chinese laws to determine foreign-related cases, and have not found cases applying to foreign laws or international conventions.
In one of the only domestic cases involving a construction contract of ship. On August 13, 2019, the plaintiff and the defendant signed a semi-finished bulk carrier construction and purchase contract in Ningbo, stipulating that the defendant would purchase the ship from Vietnam and tow it to its shipyard in China. After the construction was completed, it would be delivered to the plaintiff. According to the agreement, the ship shall be towed to the shipyard at the end of September 2019 and delivered to the buyer in May 2020. However, as of the date of the plaintiff lodged this case in June 2020, the ship is still in Vietnam. The plaintiff alleged that the delay frustrating the main object of the contract, which entitled the buyer to terminate the contract as per Article 94 the Contract Law.
In addition to refusing to admit that the contract could be terminated, the defendant argued that according to the contract, the delay due to force majeure should be regarded as lawful excuse. Affected by the epidemic, Vietnam export procedures of ships have not been completed, and the delay shall be exempted from liability for breach of contract.
The court held that since the outbreak of the Covid-19 at the end of January 2020, countries around the world have successively adopted different control measures. For example, the restrictions on entry adopted by the Vietnamese government in this case have indeed had an impact on the shipping and shipbuilding industries from the perspective of the epidemic. However, in this case, the parties agreed that the defendant shall tow the ship to China at the end of September 2019, which was much earlier than the outbreak of the epidemic. At that time, the defendant failed to tow the ship to China, in which his breach of contract occurred. Up to the final delivery date, the ship has not been towed to China, and the defendant’s breach of contract had been continuing. In other words, before the outbreak of the epidemic, the defendant’s delay in performance had already occurred and was in a continuing status. According to Article 117 of the Contract Law, if force majeure occurs after the delay in performance, the party cannot be exempted from liability. Therefore, the defendant cannot invoke the epidemic for exemption, and the defense is not accepted. The court upheld the plaintiff’s claim.
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Yingbo (George) WANG Dentons Beijing Office Senior Partner Contact: +86-010-58137018 yingbo.wang@dentons.cn |
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| George Wang has been providing professional services for trading, admiralty, aviation and logistics industry for more than 20 years, and has won a good reputation worldwide, especially for his competent services in shipping and trade areas. Clients represented by George Wang include large and medium-size state-owned enterprises, emerging privately owned companies, and multinational corporations from USA, Canada, England, Switzerland, Qatar, Italy, Japan, Singapore, and Hong Kong, etc | |
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Xin MU Dentons Beijing Office Associate Contact: +86-010-58137463 xin.mu@dentons.cn |
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| Xin Mu is qualified with both Chinese Bar and New York State Bar. She has been providing legal service to enterprise and individual clients worldwide since she joined Dentons Beijing. She has profound experience in providing services for clients including but not limited to litigation and arbitration, due diligence, compliance investigation and report, human resource in shipping and trade industries. |
[1] The Supreme Peaple’s Court of PRC issued Notice on Strenghening and Standarizing Online Litigation During the Prevention and Control of the New Coronavirus Epidemic (Feburary 14,2019);Notice of the Supreme People’s Court on Promulgation of the Guiding Opinions on Several Issues Concerning the Proper Hearing of Civil Cases Involving the COVID-19 Epidemic (I)(April 16,2019);Notice of the Supreme People’s Court on Promulgation of the Guiding Opinions on Several Issues concerning Lawful and Proper Handling of Enforcement Cases Involving the COVID-19 Epidemic(May 13,2019); Notice of the Supreme People’s Court on Promulgation of the Guiding Opinions on Several Issues Concerning the Lawful and Proper Trial of Civil Cases Involving the COVID-19 (II) (May 15,2019); Notice of the Supreme People’s Court on Promulgation of the Guiding Opinions on Several Issues Concerning the Proper Trial of Civil Cases Involving the COVID-19 (III) (June 8, 2019).
See: https://law.wkinfo.com.cn/legislation/list?q=新冠疫情%20最高人民法院ǁtitleExtend:((新冠疫情%20最高人民法院))&tip=新冠疫情%20最高人民法院