Coronavirus: doubts raised over whether Chinese companies can use force majeure to counter risks

More than 3,000 certificates were issued in February to Chinese companies seeking to invoke force majeure because of the coronavirus outbreak

But legal experts say the companies may be in for a ‘rude awakening’ if they think they will be let off the hook with international parties

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Many Chinese firms have been unable to meet contract obligations with international customers due to coronavirus-related transport and production delays. Photo: Xinhua

Published: 10:30pm, 25 Feb 2020Updated: 9:20am, 26 Feb 2020

Chinese firms are rushing to invoke force majeure – or an unforeseeable act of God – to shield themselves from contract obligations they cannot meet because of the coronavirus outbreak, but many may be unsuccessful in their efforts, lawyers and experts said.

A government-backed agency issued more than 3,000 certificates to Chinese companies in the first three weeks of February certifying that they were victims of unexpected external circumstances that prevented them from fulfilling contracts signed before the coronavirus outbreak.

The certificates, issued by the China Council for the Promotion of International Trade (CCPIT), a quasi-government trade body, provide a form of legal documentation for firms to help them renegotiate terms with overseas clients.

However, lawyers and experts said the certificates did not ensure that contract commitments could be waived.

The CCPIT issued the first force majeure certificate on February 2 to an exporter based in Huzhou in Zhejiang province because disruptions caused by the outbreak prevented the firm from delivering products to its overseas clients on time, according to state news agency Xinhua.

The unidentified company faced direct contract losses of 2.4 million yuan (US$341,000) and a possible claim for damages of 30 million yuan (US$4.2 million) from buyers if it was unable to provide a legitimate reason for the delay, according to the report.

It is unknown whether the exporter’s clients accepted the explanation and waived contract commitments. The CCPIT and its local branches had issued 3,325 force majeure certificates by the end of last week, covering contracts with a total value of 270 billion yuan (US$38.4 billion), Xinhua reported.