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This article examines the possible implications and viability of claiming force majeure in the light of disruptions to global trade that the recent COVID-19 outbreak has caused.
I. COVID-19 Outbreak & the Chinese Government's Response
On January the 30th 2020, the World Health Organisation (WHO) declared the outbreak of COVID-19 (coronavirus) (centered on Wuhan in central China) a Public Health Emergency of International Concern (PHEIC).
According to China Daily, in response to the outbreak of COVID-19, China has issued more than 1,600 force majeure certificates to shield companies from legal damages arising from the novel coronavirus disease (COVID-19) outbreak. China's Council for the Promotion of International Trade (CCPIT) had issued 1,615 certificates by Friday the 14th of February, for companies involving over 30 sectors, covering a total contract value of 109.9 billion yuan (about $15.7 billion), said the CCPIT.
The certificate exonerates companies from not performing or partially performing contractual duties by proving they are suffering from circumstances beyond their control.
The COVID-19 epidemic has delayed production for some companies as quarantine measures held back many workers from returning to their posts.
Some firms have presented the certificate to their clients and agreed on a later date to fulfill orders without facing legal liabilities, said the CCPIT.
Many international trading contracts are governed by English law, and relying on a force majeure clause to avoid contractual responsibility under English law is challenging. There is no guarantee that a government certificate will make any difference. Actually it could give Chinese companies a false sense of safety, resulting in them claiming force majeure while they are not contractually entitled to do so, that would, in turn, result in facing a claim for breach of contract in the future.
II. Force Majeure Under Greek Law
The notion of force majeure is recognised by Greek law and the Hellenic Civil Code (HCC).
Every unintended occurrence or event (not the result of wilful conduct or negligence) is considered to be an event caused by force majeure and does not incur liability.
Force majeure is a civil law concept which aims to allow the contract to be executed in circumstances where contracting parties, who are not in default, are prevented from performing their contractual obligations due to disrupting supervening events beyond their control. The inclusion of a force majeure clause allows contracting parties to agree to the occurrence of certain events which excuse a party’s performance of its contractual obligations and can, accordingly, prevent the contract from becoming frustrated.
In most cases, force majeure events are contemplated to cover the notion of English law called Act of God (unforeseeable natural phenomena), extreme weather events, riots, wars, government or regulatory actions including strikes, terrorism, or the imposition of an embargo.
However, the contractual parties may agree to extend the liability for delay, damage or loss by force majeure, under the principle of the freedom of the contractual terms. However, this freedom is not infinite and is subject to the limitations set out by the legal requirements of good faith, good morals and non-abusive exercise of right (Articles 178, 179, 281, HCC).
In the light of the above, as a general rule, contractual parties cannot be held liable for breaches of contract that resulted from events of force majeure (Articles 336, 342, 380, HCC).
In the event of a lack of ability to perform by a contracting party (who is not at fault), this party is released from the obligation to perform (Article 380, HCC).
In sales contracts, unless otherwise stated and agreed upon in the contract, the buyer bears the risk for the random destruction or deterioration of goods at the time of delivery (Article 522, HCC)
Greek law also recognizes the concept of unexpected changes in circumstances (Article 388, HCC). In particular, if the contracting parties proceed to an agreement based on certain circumstances and these circumstances change following unforeseeable and unpredictable events (rendering the fulfillment of a party’s contractual obligations overly burdensome), then that party may request the court to adjust the obligations according to the new circumstances or to terminate the contract in whole or in part.
III. Force Majeure Clauses in the light of COVID-19
As aforementioned many international trading contracts are governed by English law. This in turn may present important challenges to the claimants of a force majeure event:
IV. Possible Solutions
Valmas Associates are monitoring all developments and can advise you in the event your business has been affected or you wish to take protective measures.
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About the Author |
Ioannis Valmas LLB, LLM, (MSc) is Managing Partner at Valmas Associates and a Greek trial attorney and legal advisor that has represented – almost exclusively – since 2008, overseas clients (from government bodies to private individuals) for their administrative, business and personal legal matters in Greece gaining a stellar reputation abroad. He has lived abroad for almost a decade and earned several degrees from UK Universities. He has attended seminars at US Universities (Harvard and Stanford Law Schools). He has been a member of the Athens Bar Association for over a decade. He is appointed before the Court of Appeals and licensed to practice law throughout the territory of the Hellenic Republic, Greece. His writings on Greek Real Estate Law, Aviation Law and Shipping have been widely published in recent years by publishers in Greece and abroad.