COVID-19 Legal Series (2): How to Minimize Losses From Force Majeure Declarations

Feb 28, 2020
With business disruption caused by the emergence of COVID-19 and possible failure to deliver on contractual obligations on the part of Chinese counterparties, foreign companies doing business in China must consider their contractual liabilities in order to mitigate their potential risks. Scott Yu, Frank Jiang and John Jiang of Zhong Lun Law Firm examine the implications. The authors are grateful for the assistance of Emily Xu and Evy Wu in preparing this article.

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The novel coronavirus (COVID-19) is continuing to take its toll on public health and the global economy while at the business operational level, foreign companies under ongoing contracts with Chinese counterparties are particularly concerned with the disruption to their operations, as well as associated contractual rights and liabilities. The Chinese government and several foreign governments have imposed a number of draconian restrictions, including city lockdowns, office closures, quarantines and travel bans. The impact of COVID-19 has been felt in areas such as production, supply, labor, logistics, shipping and trade.

Against this backdrop, there has been an increase of cases in which a Chinese contract party has sought to invoke force majeure to delay or relieve their contractual obligations. The China Council for the Promotion of International Trade (CCPIT) and its local counterparts alone had issued more than 3000 force majeure certificates as of Feb. 21, 2020. There are a number of important considerations for contract parties (in particular international companies who are doing business in China or with Chinese partners) who have either received, or are likely to receive, a force majeure notice from affected counterparties.

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