How are Force Majeure and Hardship regulated in the laws of the People’s Republic of China?
Article 180 of the PRC General Rules of Civil Law provides that no Civil Liability is borne in case of failure to perform civil duties due to Force Majeure, unless otherwise provided by law.
Force majeure means the impossibility to perform the contractual obligation due to an event which unforeseeable, unavoidable and impossible to overcome with reasonable efforts.
Article 117 of the PRC Contract Law provides that if it is not possible to fulfil a contract due to Force Majeure, then, depending on the extent of the event, the performing party shall be partially or wholly excused from liability, except where laws provide otherwise. In case an event of Force Majeure occurs when a party is already defaulting its obligations (e.g. the deadline to deliver the products e has already passed), the said party will not be excused from liability.
PRC law does not have a very clear provision defining Hardship: where the event does not cause the impossibility to fulfil the contract, but has a major impact on the performance of the obligation of one party, then the principle of fairness and the rule of change of circumstances, may be applied.
According to the Minutes of the National Economic Trial Work Meeting in 1993, the Supreme People’s Court held that, if due to reasons not attributable to the parties, the basis of the contract has undergone fundamental changes that could not be foreseen by the parties, with the result that performance of contract would be unfair, the contract may be modified or terminated at the request of the parties in accordance with the rule of change of circumstances.
Article 26 of the Interpretation of the Supreme People’s Court on Several Issues Concerning Application of the Contract Law of the People’s Republic of China, which came into effect as of May 13, 2009, provides that “Where any significant change in the objective environment has taken place after the formation of a contract which could not have been foreseen by the relevant parties at the time of entering into the contract, and does not belong to any commercial risk occasioned by any force majeure cause, rendering the continual performance of the contract manifestly unfair to the relevant party or rendering it impossible to realize the goal of the contract, the People’s Court shall confirm whether the contract shall be modified or terminated in accordance with the principle of fairness taking into account the actual circumstance, where the concerning party applies to the People’s Court for modifying or terminating the contract.”
When it comes to international contracts, the People’s Republic of China is a member of the 1980 Vienna Convention on the International Sale of Goods (CISG): if CISG applies to contract then Force Majeure would be disciplined by its art. 79 titled “Impediment Excusing Party from Damages” which provides that, “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.”