The term force majeure is originated from French Civil Code. Until today, it is still diagramed in the term of the French word “force majeure” in international trade. A force majeure clause is an exemption from liability in certain circumstances.

For the definition of force majeure, the internationally accepted law is United Nations Convention on Contracts for the International Sale of Goods, article 79(1) of which states: "A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences." While China relies primarily on Civil Code of the People's Republic of China, in which Article 180 provides that "A person who is unable to perform his civil-law obligations due to force majeure bears no civil liability…… ‘Force majeure’ means objective conditions which are unforeseeable, unavoidable, and insurmountable. " In comparison with the definition of force majeure in United Nations Convention on Contracts for the International Sale of Goods, what have been stated in Civil Code of the People's Republic of China is clearer, more intuitive and more general. It should be noted that before the relevant matters can be considered as force majeure events, the three elements of unpredictability, externality and insurmountable should be satisfied in the mean time.

I. Salient points in setting out force majeure provisions

i. Scope of force majeure situations

In practice, all kinds of emergencies emerge in endlessly. Due to the high generalization of the definition of force majeure, according to which, the parties to the contract may not be able to make a precise judgment on whether the impediment that has occurred is an exempt matter. Therefore, force majeure events are often clarified by enumeration in international trade contracts .

According to the ICC FORCE MAJEURE CLAUSE (2020), the recommended events of force majeure to be agreed upon are as follows.

(1) Natural disaster or extreme natural event such as earthquakes, typhoons, tsunamis, heavy rainfall, snowstorms, cold waves, gales, sandstorms, etc;

(2) Plague, epidemic;

(3) War (whether declared or not), hostilities, invasion, act of foreign enemies, extensive military mobilisation;

(4) Civil war, riot, rebellion and revolution, military or usurped power, insurrection, act of terrorism, sabotage or piracy;

(5) Act of authority whether lawful or unlawful, compliance with any law or governmental order, expropriation, seizure of works, requisition, nationalisation;

(6) General labour disturbance such as boycott, strike and lock-out, go-slow, occupation of factories and premises;

(7) Explosion, fire, destruction of equipment, prolonged break-down of transport, telecommunication, information system or energy.

In addition, please note that the parties should take into account the specific mode of transaction and the risks that may occur in connection with it in order to abridge the force majeure events mentioned above. Especially in the context of COVID-19 pandemic and the intensification of the Russian-Ukrainian conflict, force majeure clauses should focus on listing circumstances in relation to pandemic and war. The enumeration should be clear and specific.

ii. Notification Obligation

United Nations Convention on Contracts for the International Sale of Goods, article 79(4) thereof provides: "The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt." Article 590 of Civil Code of the People's Republic of China provides that "......The party unable to perform the contract due to force majeure shall promptly notify the other party to mitigate the losses that may be caused to the other party, and shall provide proof of the force majeure within a reasonable period of time." The performance of notification obligation is crucial in the event of force majeure. For the party who is unable to perform the contract timely notification to the other party will not only reduce liability to some degree, but also reduce unnecessary losses to the other party.

In order to protect the rights and interests of the party not affected by force majeure as far as possible, special attention should be paid to the following two time limits when setting out the notice obligation provisions.

First, notification of force majeure should be given within a reasonable time when the party affected by the force majeure event "knows or should have known". Please make sure that “should have known" is reflected, otherwise it may create the ground of defenses for the party claiming an exemption for the reason of delayed notification. The party may claim that it had late knowledge of the force majeure event and that it is therefore not liable for any loss caused to the other party before the notice was given.

Secondly, the law states that notice is to be given "within a reasonable time", but in practice, "reasonable time" is difficult to determine and everyone's interpretation differs. Therefore, it is recommended that when drafting contractual provisions, the period for such "reasonable time" should be specified, for example, within 14 days of knowing or should have known the event of force majeure.

iii. Burden of proof

The application of a force majeure clause does not, of course, merely require that the other party be notified of the clause. Statutory obligations of which also include providing evidence that the performance of the contractual obligations cannot be continued in the event of force majeure. Therefore, it is essential to require the other party to provide proof under the related circumstances when setting out contractual provisions, which also effectively reduces the abuse of the clause.

iv. Legal consequences

What are the legal consequences of the application of a force majeure clause? There is no doubt that a party who notifies the other party within a reasonable time and has sufficient evidence of force majeure is not liable for its own non-performance of the contract. However, will the contract then continue, be extended, suspended or terminated? It has not been specified by law, therefore left to the parties to the contract to determine. In the event that the parties to the contract are unable to determine the situation in advance, it is recommended to agree that if force majeure affects the contract for more than 60 days, either party shall be entitled to terminate the contract and the parties shall negotiate alternative measures.

II. Model clauses

The following is a demonstration force majeure clause for reference only, and the specific contents shall be adjusted according to the contents of the contract.

i. The force majeure events means unforeseen events not controlled or prevented by the Parties, such as war, political turmoil，flood, drought, typhoon, fire, earthquake, explosion, epidemics, change in laws or policies, labor disputes (including but not limited to strike, slowdown, lockout or sabotage), severe shortage of oil, gas, electricity or raw materials that prevents Seller from continuing normal operation; or acts(s) or non-action of other third parties, such as the relevant governmental authorities, the forwarding agent(s), insurance company or shipping company. A party's lack of funds shall not be a force majeure event.

ii. Either party shall not be liable for failure to perform or timely perform any of its obligations hereunder due to force majeure events. However, the Party affected by the Force Majeure event shall notify the other Party within 14 days by letter, fax or E-mail after it knows or should know the occurrence of force majeure and provide relevant supporting documents of the occurrence of force majeure.

iii. The party claiming to be affected by force majeure shall take all reasonable measures to reduce the losses, damage or consequences caused by the force majeure event. Otherwise, the party will be liable for the "enlarged portion of loss".  

iv. If the force majeure event lasts for more than 60 days, either party shall have the right to terminate this Contract and both parties shall negotiate the disposal measures separately.

III. Typical case study

Basic facts of the case: Company A sold a batch of aquatic products to Company B. Company B claimed that the sale and purchase contract between Company A and Company B was terminated due to Company C, a downstream company processing aquatic products, was affected by the epidemic and claimed that it was exempted from liability based on force majeure. In order to prove that the losses claimed by Company A were excessive, Company B submitted evidence that it had since purchased similar goods from others.

Court opinion: ‘Force majeure’ means objective conditions which are unforeseeable, unavoidable, and insurmountable. The prerequisites for a party to be exempted from liability under the provisions of the United Nations Convention on Contracts for the International Sale of Goods or the Civil Code include i) the existence of an obstacle or objective circumstance beyond the party's control, preventing the party from performing its contractual obligations; ii) the obstacle or objective circumstance could not be foreseen at the time of the conclusion of the contract. In this case, Company A claimed that the termination of the contract was caused by the epidemic and that it should be exempted from liability. The Court held that the contract was signed between 27 March and 31 March 2020 and the epidemic had already started when the contract was signed, so Company A could foresee the impact of the epidemic on the performance of the contract when it signed the contract. Therefore, the court did not support the claim that company A should be exempted from liability.

IV. Summary

Force majeure clause is an essential clause in almost every international trade contract. It will have no impact on the performance of the contract under normal circumstances, while an incalculable impact on the profit and loss of the parties is possible to be caused when the event of force majeure occurs. Therefore, it is essential to set out force majeure clauses in a legitimate and reasonable approach in the protection of the interests of the parties.

[1] Guo Yanghui. The elements and criteria of force majeure. China Courts.  

https://www.chinacourt.org/article/detail/2014/01/id/1172505.shtml

[2] Li Yanshan, Ding Yuzhi. How to Seek Certainty in Uncertainty (III) - An Example of Drafting Force Majeure Clauses in Contracts.  

http://www.east-concord.com/zygd/Article/20223/ArticleContent_2751.html