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Coronavirus - initial global contractual issues relating to outbreak in China

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  • Coronavirus - Contractual issues



On 30 January 2020, the World Health Organization (WHO) declared a Public Health Emergency of International Concern (PHEIC) in response to the spread of the Wuhan coronavirus, the sixth time that the WHO has made this declaration since adopting the PHEIC procedure in 2005.

The spread of the coronavirus gives rise to commercial and practical issues for businesses in China and globally. A number of countries have suspended travel and freight to and from China, while there are also similarly severe restrictions within China, and some have even evacuated their citizens from Wuhan. In addition, while the Chinese government has extended the Lunar New Year holiday until 2 February, some regions (such as Shandong, a Chinese oil refining hub) have asked businesses not to resume their operations before 10 February.

The outbreak and the measures undertaken by the Chinese Government to contain it, are already resulting in serious business disruption for a number of companies and based on our experience of previous outbreaks such as SARs, the impact only promises to worsen. Examples of businesses most affected are (i) those that rely on international trade that will be disadvantaged by trade restrictions, delays and deviations in deliveries, port closures etc; (ii) the Chinese shipbuilding and construction industry that is already affected by extensions in holidays, lack of work force, dwindling food supplies etc; (iii) transportation industry with vessels being deviated or held away from Chinese ports; and (iv) commodities and energy trading.

Force majeure

Companies suffering from or concerned about potential business disruption should start reviewing their existing contractual arrangements to determine what the legal implications of the outbreak and measures to contain it will be. It is common for commercial contracts to contain provisions which permit the suspension of services as a result of certain events which make the performance of a party’s contractual obligations in the time and manner specified in the contract impossible or commercially impractical. Such events are ordinarily categorised as ‘force majeure’ events, although different terminology may be used depending on the contract.

Much depends on the governing law of the contracts. Force majeure is a principle borrowed from the French civil code, whereby a party will not be liable for its failure to perform an obligation where this failure has been caused by the occurrence of exceptional events outside that party’s control. The civil code of many other civil law jurisdictions will prescribe the definition of what is meant by force majeure in that jurisdiction. For instance, Article 117 of the PRC Contract Law defines force majeure as an objective event or circumstance which is unforeseeable, unavoidable and insurmountable. If the governing law of the relevant contract is English law, the concept of force majeure is not automatically read into the contract and will need to be a contractual right agreed by the parties. If there is no force majeure provision in your contract, you will need to consider other remedies (detailed below).

The precise meaning and effect of a force majeure clause will depend on the specific wording of the clause and its interpretation under the relevant governing law of the contract. There are however a number of points that need to be taken into consideration by companies over the next few days and weeks before they invoke the force majeure provisions of a contract or when they receive a force majeure notice:

  1. Does the outbreak or the measures undertaken by the Chinese government or the governments of other countries affected by the coronavirus fall within the definition of force majeure in the contract? Some contracts include a defined list of such events that will constitute force majeure events. Commonly listed events of force majeure include: acts of God (including earthquakes, volcanic eruptions, landslides); natural catastrophes; plague or epidemic; wars, invasion, armed conflict; blockades, embargoes; sabotage; nationwide strikes; acts of government etc. This outbreak is quite interesting in that it involves a naturally occurring epidemic as well as a number of government actions such as the quarantines, extended holidays, transportation blockages etc. Other contracts simply define a set of criteria which must be met for the event to be considered a force majeure event (for example, the event be beyond the reasonable control of the party or cannot have reasonably been foreseen by the parties).
  2. Has (or will) the outbreak or the measures undertaken by the Chinese government or the governments of other countries impacted upon performance or the performance of one’s contractor or contract counterparty under the relevant contract? It will be rare for a force majeure clause not to require that the force majeure event must have an impact on the performance of the contract. The degree of impact (e.g., whether performance must be impossible or merely materially affected) will depend on how it is defined in the relevant contract and the applicable governing law.
  3. Does the force majeure clause include any other provisions which need to complied with? For example, a contract may provide that a party looking to serve a force majeure notice should notify the counterparty within a specified time frame or using a particular method (such as service of notice in writing by post rather than electronically by email). It is extremely important to note that such provisions may in effect be conditions precedent to the affected party’s right to rely on the force majeure clause. There may also be obligations in the force majeure clause or the applicable governing law that require the affected party to take certain steps to avoid or mitigate against the impact of a force majeure event. Therefore, if the affected party does not comply with all the requirements its non-performance may not be excused.
  4. Under English law the burden of proof is on the party seeking to rely on force majeure provisions to prove that an event gives rise to a permissible delay, which had the effect of preventing it from performing its obligations under the contract. Therefore, companies seeking to rely on force majeure clauses should obtain as much information as possible about the events affecting them, including the timing, the number of impacted parts/facilities, and when the force majeure event is expected to conclude. Companies who are currently in receipt of force majeure notices from their contractors or contract counterparties should respond requiring them to provide complete information in relation to the force majeure event and how it has affected the relevant party.

It is possible that the contract in question also provides that if the services are suspended for longer than a specified time period then one or more parties may terminate that contract. It is therefore crucial that companies make themselves aware of any deadlines set out in the contract where the force majeure provisions have been invoked. If attempts to resolve the issues giving rise to the suspension are unsuccessful (or if alternative arrangements cannot be put in place) then the party relying on the force majeure provisions may wish to discuss agreeing an extension with the counterparty closer to those deadlines. In addition to evaluating force majeure provisions in contracts, it would be advisable for companies to also consider what avenues of redress, including dispute resolution mechanisms, are provided for in such agreements in relation to any costs or losses arising out of or in connection with the non-performance of contractual obligations.

Force majeure shield

The China Council for the Promotion of International Trade (CCPIT) is offering force majeure ‘shield’ certificates to companies based in China that are seeking to rely on provisions enabling them to suspend performance of their contractual obligations. Affected companies will need to submit certain documentation to the CCPIT before obtaining the certificates (such as proof of delays or transport cancellations). What is unclear at this stage is how such certificates will fit within the contractual force majeure regime that the parties have agreed.

Frustration and hardship

If the contract does not have permissible delays or other force-majeure type events, then parties will need to consider alternative routes through which to obtain relief. Where the governing law is English law, the common law doctrine of frustration may be invoked in certain limited circumstances. If a contract has been frustrated, it will be terminated so that the parties are excused from further performance. However, in order for a contract to be frustrated, the event in question must be unforeseen, have occurred without the fault of either party to the contract and it must either make the contract’s performance impossible or it must destroy the fundamental purpose of the contract.

If the governing law is PRC law or the contract at issue contains a hardship clause, a party may argue that the coronavirus outbreak has caused hardship on such party and the contract should be either adapted or terminated. Under PRC law, if as a result of unpredictable and exceptional events that are not of a nature of commercial risk and caused by force majeure, the performance of the contractual obligation becomes unconscionable or the purpose of the contract has been frustrated, a party may resort to the courts. If the court finds hardship exists, it may either terminate the contract or adapt the contract in accordance with the fairness doctrine. However, PRC courts tend to be quite cautious in finding the existence of hardship and such finding by lower-level courts is subject to approval by higher-level courts.

Long-term LNG purchase arrangements

The above discussion in relation to force majeure and similar delayed performance provisions is based on the assumption that such provisions will provide immediate relief to parties affected by the outbreak and associated containment measures. Companies, including Chinese businesses, may however also be party to contracts where the underlying obligations will still need to be performed albeit at a later point in the contract year. For example most long-term LNG sale and purchase agreements, have annual volume commitments that can be postponed to later in the year. Therefore, the impact on the ‘take’ obligation of an LNG end-user cannot be fully assessed at this stage nor can the ability to obtain relief from performance.

International Trade

There are a number of countries that have imposed temporary entry bans on Chinese citizens or recent visitors to China. However, as far as trade is concerned, we are not aware of any import or export restrictions imposed by the WHO, the PRC government, or other countries that are specific to the outbreak of coronavirus. In fact the WHO has recently reminded the global community that under Article 43 of the International Health Regulations (IHR) (2005), parties implementing additional health measures that significantly interfere with international traffic (e.g. refusal of entry or departure of international travellers, baggage, cargo, containers, conveyances, goods, and the like, or their delay, for more than 24 hours) are obliged to provide to the WHO the public health rationale and justification within 48 hours of their implementation. The WHO will review the justification and may request countries to reconsider their measures.

Depending on how the situation develops in relation to the spread of coronavirus, it remains to be seen whether governments around the world may unilaterally introduce restrictions on trade. Nevertheless, it is anticipated that the outbreak will cause practical difficulties, disruptions and delays in international trade due to the measures undertaken to contain the virus, such as additional entry-check and quarantine procedures.

Charter Parties

The coronavirus outbreak may give rise to a number of legal questions in relation to charter parties, including potential port closure, deviations, suspension or termination of shipments. If a port is closed or rendered unsafe due to the coronavirus outbreak then the charterers may need to nominate an alternative port. At present, however, it does not appear as though coronavirus has reached a stage where closure of Chinese ports is, or might be, contemplated due to safety reasons. A ship owner would therefore have to consider the issue very carefully before refusing an order to a port on the basis of disease risk. In case of any delays to a charter caused by deviation (e.g. landing a crew member due to illness) or quarantine, (in a time charter) the vessel might be declared off-hire as a result of a time charter’s hire/off-hire provisions or (in a voyage charter ) such deviation will usually be at the expense of the vessel owner (other than in certain circumstances provided for under the Hague or Hague-Visby Rules). In addition, vessel owners affected by coronavirus may seek to suspend (or terminate) a charter party relying on force majeure. Please see above (Force Majeure) for our discussion on the required elements of a Force Majeure claim.


From an employer’s perspective, companies operating in China should comply with and take guidance from the Chinese government’s notices and regulatory documents amid the coronavirus outbreak. As mentioned above, the PRC central government has issued a notice extending the Lunar New Year holiday. Additionally, many provincial or municipal governments have issued notices on the postponement of work that are effective locally. For example, the governments of Shandong, Shanghai, Guangdong, Fujian required enterprises (other than the enterprises whose operation is required to ensure public utilities, epidemic control or people’s daily needs) not to resume work before 10 February 2020. The notice issued by Fujian province even specifically sets out prevention measures to be adopted in workplaces, such as daily recording of employee’s health condition and report of coronavirus infection to local epidemic control authority.

The government’s authority to issue these notices to extend holidays or postpone work is based on the Emergency Response Law of the People’s Republic of China and the Law of the People’s Republic of China on the Prevention and Treatment of Infectious Diseases, which empowers the government to take measures to prevent virus transmission. Non-compliance with these regulatory documents could result in administrative or criminal penalties.

In addition, the Ministry of Human Resources and Social Security of the People's Republic of China (MOHRSS) has issued several notices amid the outbreak, including the notice on 24 January 2020 clarifying on salaries, leaves and other labor relation issues that may arise due to virus control and prevention measures or disease treatment. Similarly, many local MOHRSS authorities have respectively issued their versions. Employers should keep abreast of and ensure compliance with such notices.

Beyond compliance with local laws, Chinese companies should ensure measures are taken to properly assess the risks to employees and the impact on business continuity and adapt their plans accordingly. These measures include assessing the risks faced by their staff whilst at work and developing measures to control those risks, identifying how much flexibility they have to adapt their working arrangements to ensure business continuity and special measures to protect vulnerable employees. The key is to plan ahead and to show leadership, thereby enabling employers to be well prepared to support their staff and to maximize the resilience of their business.

Banking and Financing Considerations

During periods of acute operational and business disruption (such as that being triggered by the coronavirus), short-term liquidity and cash-flow is inevitably impacted. Companies should be actively managing, modelling and monitoring their liquidity and projecting their likely working capital needs. Based on information already available, companies should be re-assessing and modelling the likely impact on their respective liquidity and working capital requirements, with a number of potential downside scenarios, including a worst case.

Companies should review all of their debt funding agreements to ensure that they do not contain triggers that could possibly result in credit lines being curtailed or terminated. Whilst we do not consider that the current circumstances regarding coronavirus in themselves would constitute a “material adverse change” under most debt funding agreements, those types of provisions are invariably fact-specific and so they should be considered carefully. Any financing modelling exercise should also include an analysis of compliance with financial covenants and the like in the various downside scenarios (including worst case).

As part of their ongoing dialogue with funders, companies should ensure that communications are consistent, with clear messages from companies that they are implementing plans to actively manage and mitigate the impact of the coronavirus on their business and cash-flows. Pro-active engagement with the relationship principals is recommended, i.e. companies should be calling their funders, rather than waiting for such calls.

As well as looking inward, companies need to look outward and review and analyse the position of their key counterparties, particularly those where an insolvency or similar event affecting such counterparty could have a material adverse impact on their position. Early engagement with such key counterparties is essential to ensure that there are “no surprises”. Typical issues include: accounts receivable (i.e. ensuring that there is no unplanned material loosening of credit controls); supplier stock control management; credit rating downgrades and the like.

An analysis of planned capex and a separation of “essential” vs “non-essential” capex is an important exercise in order to allow companies to be ready to defer non-essential capex if circumstances require this to be done. In our experience, such an exercise can take a long-time and so it is better commenced earlier rather than later.

If the initial review suggests that there may be liquidity and working capital management issues, companies should consider engaging with their financial advisor(s) to provide insights and support as the company reacts to such problems. Funders will typically be more supportive if they see their borrower pro-actively managing such issues with appropriate external support.


Businesses, including Chinese companies, should ensure that the relevant contractual and legal requirements are followed where they (or a counterparty) are seeking to rely on force majeure provisions in relation to the non-performance of contractual obligations, whether as a result of the coronavirus outbreak or the measures undertaken by the Chinese government or other governments which have undertaken measures to contain the coronavirus. At the same time, companies should assess the costs and losses of non-performance of contractual obligations and seek to control the losses and put alternative arrangements in place where feasible. Businesses also need to closely monitor the current situation and be decisive at this early stage in order to adapt their strategy and mitigate the financial impact. Further, from an employer’s perspective, companies should similarly monitor the situation on a regular basis, taking guidance from authorities in China and from international bodies such as the WHO:

It is important to not lose sight of the fact that the impact is likely to be short-term in nature - months rather than years. The Chinese government’s announcement of a US$174 billion injection into their markets for 3 February 2020 is intended to mitigate a potential contraction in liquidity and any related increase in funding costs. In addition, the government has announced a package of measures intended to ensure that Chinese companies are better placed to ride the storm. Whilst the effectiveness of such interventions is difficult to assess, they send a clear signal that further government interventions will follow as may be required.

The main challenge facing companies will be to judge how to adjust their strategic priorities to ensure that, as well as mitigating the financial impact of the outbreak, they do not compromise their long-term growth. Following the SARS outbreak, market commentary indicated that many companies had taken decisions that, with hindsight, were an over-reaction to the crisis and had thereby curtailed their growth in subsequent years.


2020年1月30日,作为对新型冠状病毒疫情(简称“新冠疫情”)的回应,世界卫生组织(the World Health Organization,简称“WHO”)宣布,新冠疫情构成“国际关注的突发公共卫生事件”(Public Health Emergency of International Concern,简称“PHEIC事件”)。这是WHO自2005年通过PHEIC程序后第6次做出构成PHEIC事件的决定。




业务受到影响或可能受到影响的企业应开始审查其现有的合同安排,以确定新冠疫情在法律层面上的影响及相应的应对举措。商业合同中通常包含不可抗力条款,即,由于某些事件的发生而导致合同一方不可能或不能商业合理地按照合同约定的时间和方式履行合同,而导致服务中断。此类事件通常被定义为“不可抗力”(force majeure)事件 。



  1. 中国政府或其他受新冠病毒感染的国家政府所采取的措施是否符合合同中对不可抗力的定义?一些合同中包含了不可抗力事件的清单。通常被列为不可抗力事件的情形包括:天灾(如地震、火山爆发、山体滑坡);自然灾害;瘟疫或传染病;战争、入侵、武装冲突;封锁、禁运;破坏;全国性罢工;政府行为等。有趣的是,此次新冠疫情既涉及一种自然发生的传染病,也涉及一些政府行为如隔离、公共假期延长、交通封锁等。另外一些合同则可能只是简单地定义了一组构成不可抗力事件必须满足的标准(例如,该事件超出了一方的合理控制,或双方不能够合理预见的事件)。
  2. 中国政府或其他国家政府所采取的措施是否已经影响(或将会影响)承包商或合同对方在相关合同项下的履行情况?大多数不可抗力条款均要求构成不可抗力的事件必须对合同的履行产生影响。影响的程度(例如,是否必须达到不可能履行的程度,还是履行受到重大影响即可)则取决于相关合同和适用法律下的定义。
  3. 不可抗力条款是否包括其他需要符合的规定?例如,合同可能规定,希望发出不可抗力事件通知的一方应在规定的时间内、或通过特定的方法(如通过邮寄信件而不是电子邮件的方式发出书面通知)通知对方。需要特别注意的是,这些要求可能是受影响方行使不可抗力条款下权利而需满足的先决条件。在不可抗力条款或适用法律下,还可能存在要求受影响方采取某些措施以避免或减轻不可抗力事件的影响的义务。因此,如果受影响的一方不符合所有的要求,则其不履行合同的行为无法被豁免。
  4. 根据英国法,希望援引不可抗力条款的一方负有举证责任,需要证明某一事件的发生导致了允许的延迟、从而导致其无法履行合同义务。因此,寻求不可抗力条款保护的企业应该尽可能多地获得对其造成影响的事件的相关信息,包括时间、受影响的部门或设施的数量、以及不可抗力事件的预计结束时间。而收到来自承包商或合同对方的不可抗力事件通知的企业,则应做出答复,要求对方提供有关不可抗力事件及其对有关方的影响的完整信息。





如果合同中未约定延迟或其他不可抗力类型的事件,则各方将需要考虑通过其他途径获得救济。当适用法律为英国法时,普通法下的合同受挫失效原则(doctrine of frustration)可能适用,但情形较为有限。当一份合同被认定为“受挫失效”(frustrated),该合同将被终止,而合同各方则可以免于继续履行。然而,为使合同被认定为“受挫失效”,所涉及的事件必须是不可预见的、在没有合同任何一方过错的情况下发生的、且该事件必须使合同无法履行或破坏了合同的根本目的。