On April 20, 2020, China’s Supreme People’s Court (“SPC”) published its Guiding Opinion on Several Issues Concerning Proper Trial of Civil Cases Involving COVID-19 Pandemic (I) (关于依法妥善审理涉新冠肺炎疫情民事案件若干问题的指导意见（一）; “Opinion”). In this long-awaited Opinion, the SPC gives lower courts in China guidance on handling civil cases relating to the COVID-19 pandemic. The Opinion offers detailed guidance on applying force majeure and other principles to contracts when their performance is impacted by COVID-19 and addresses a number of other issues that the SPC has identified as affecting judicial processes.
COVID-19 impacts on contract performance
The Opinion stresses a number of key considerations in applying force majeure and related principles to relieve contract parties from liability for contract performance where performance is impacted either by the COVID-19 pandemic itself or government measures taken to control COVID-19:
- Care should be taken in identifying the relevant legal provisions governing force majeure. Not only are provisions of the General Principles of the Civil Code and the Contract Law potentially applicable, but also other laws and regulations of specific relevance to the dispute at hand.
- The party seeking to be discharged in whole or in part from a civil liability due to force majeure must demonstrate (a) causation (including its extent) between the pandemic or related control measures and the party’s failure to perform, and (b) that it provided timely notice to the other party. In addition, if the party invoking force majeure contributed to the failure to perform or to the extent of losses suffered, it should bear legal responsibility for its contribution.
- Without making an express reference to it, the Opinion leverages concepts associated with the “changed circumstance” doctrine under Chinese contract law in directing lower courts to facilitate continued performance of contracts. The Opinion states that if the pandemic or related control measures only make performance more difficult rather than impossible, then the parties should seek to renegotiate contract terms and the court should support continued performance rather than granting contract rescission as a remedy. If continued performance is unfair to one of the parties, that party can seek judicial support for revisions to the contract’s terms. If the pandemic or related control measures render the purpose of the contract unachievable, the court should support either party’s request to rescind the contract.
- In considering whether continued contract performance is practicable, the court may take into account subsidies, tax relief, or other financial support associated with the pandemic or related control measures that the parties may have received from the government.
- Labor issues. Courts are guided:
- to support employers in their adoption of flexible working hours during the pandemic; and
- not to support employers who seek to terminate employees merely on the grounds that they have been diagnosed with COVID-19, are suspected to be infected with or are an asymptomatic carrier of the virus causing COVID-19, have been quarantined, or are from a COVID-19 hotspot.
- Protecting consumers. Recognizing current concerns in regard to safety of personal protection equipment, medicine, and food during the COVID-19 pandemic, the Opinion reminds courts of the availability of punitive damages as a consumer remedy under the Law on Protection of Consumer Rights and Interests and other legislation.
- Tolling limitation periods and court deadlines. For civil claims within the last six months of the applicable limitation period for asserting a claim, courts are authorized to grant a party’s petition to extend the limitation period if the pandemic or related control measures have prevented the party from asserting a claim. The Opinion also authorizes courts to extend legal or court deadlines for litigants affected by COVID-19, including those diagnosed with COVID-19, suspected to be infected with or are an asymptomatic carrier of the virus causing COVID-19, or quarantined due to COVID-19.
- Encouraging extra-judicial methods for resolving disputes and flexibility in use of protective measures. The Opinion encourages the use of mediation to resolve disputes without recourse to court proceedings and the exercise of flexibility in the use of property preservation and related measures in order to reduce the burden on companies that have been adversely affected by the pandemic.
- Encouraging consistent application of law. The Opinion recommends that courts at a higher level provide guidance to lower level courts to enhance uniformity in decision-making, including through the issuance of reference case reports.
As further explained in the Terms / Notices linked below, the information provided herein does not constitute legal advice. Any information concerning the People’s Republic of China (“PRC”) is not intended and shall not be deemed to constitute an opinion, determination on, or certification in respect of the application of PRC law. We are not licensed to practice PRC law.