Opinions Given in Response to Common Contract Disputes Involving Epidemic Situations

Article Abstract: In order to deal with the contractual disputes affected by the epidemic situation, local courts and courts at all levels have successively formulated and promulgated relevant policy documents and judicial guidance. In addition to the application of force majeure, the change of circumstances is also one of the rules for courts to hear such cases in a fair and proper manner. Accordingly, this article provides a response analysis of common contracts that are greatly affected by the epidemic situation in the sale and purchase of commercial housing and lease and construction projects.

Keywords: Epidemic Contract | Response Opinions

 

Where the failure to perform a contract or the continuous performance of a contract has a significant impact on the interests of the parties concerned due to the impact of the epidemic situation, the relevant provisions on force majeure may be applied on a case-by-case basis, the extent of impact of the epidemic on the performance of the contract shall be comprehensively examined, and contract disputes shall be properly dealt with in light of the principle of fairness.

I. Ideas in Dealing with Epidemic Contract Disputes

(I) Review of the Conclusion and Performance Time of Contracts

Epidemic situation, as a type of force majeure, must occur after the conclusion of the contract and before the completion of performance. If a party signed a contract during the epidemic situation, it cannot defend itself on the basis of force majeure or change of circumstances rules. If epidemic occurs during the delay of a party in performing the contract, which causes the contract unable to be performed, the party will not be exempted from liability for breach of contract.

(II) Review of the causal relationship between the epidemic situation and the performance of the contract

After the outbreak of the epidemic, epidemic prevention and control in various places may have a significant or minor impact on the performance of the contract. If there is a causal relationship between the two, the parties may mitigate or exempt their liability by force majeure. Where the impact of the epidemic and the party's own fault jointly cause difficulties in the performance of the contract, if the party affected by the epidemic fails to notify the other party of the same in a timely manner and causes additional losses, the contract obligor will not be naturally exempted from corresponding liability for breach of contract.

(III) Review of the impact of the epidemic situation on the performance of the contract

The key for continuous performance or rescission of the contract is to decide to choose to apply the force majeure or change of circumstances rule. According to the Contract Law and the guiding opinions on provincial and municipal judicial documents, only only where the contract cannot be performed or the epidemic situation has a significant impact on the contract can the parties concerned claim termination of the contract or reduction or exemption of liability for breach of contract by force majeure or change of circumstances. If the contract cannot be performed only for a moment, the contract may be changed by extending the performance period or changing the method of performance according to the principle of equity.

II、 Reply to Common Epidemic Contract Disputes

(I) Disputes over commodity housing purchase and sale contracts

1. Due to the impact of epidemic prevention and control, shall the developer be liable for breach of contract in failing to hand in the property within the specified time limit?

The closure and suspension of construction site due to the epidemic shall be deemed as a force majeure event. The developer may be exempted from liability within the corresponding extension of time, provided that it shall perform its notification obligation in accordance with the law. The provisions on exemption from liability due to force majeure shall apply if the developer fails to notify the property buyer in a timely manner, causing additional losses. Where the shortage of manpower, delay in construction period or failure to transport equipment or materials required for the project to the construction site due to local population flow control or government requirement for resumption of work within a time limit due to traffic control or other factors, the provisions on exemption from liability due to force majeure shall apply.

Where a developer's delay in handing over the property is due to both the impact of epidemic prevention and control and its own fault, it is required to see the specific prevention and control requirements and the impact on the construction before determining whether the developer should bear the liability and the proportion of liability. Where a developer has performed its due obligations but cannot avoid the delay of the construction period, its liability may be fully exempted; where there are both epidemic prevention and control factors and fault factors such as poor management, the liability for breach of contract shall be reduced or exempted as the case may be.

Article 12 of Nanjing Intermediate Court also expressly provides that contract may not be deemed as breach of contract provided that the parties concerned have fulfilled their obligation of notifying the developer in a reasonable manner. However, the parties shall continue to perform their obligations as stipulated in the contract within a reasonable period after the disappearance of the above circumstances. The people's court shall examine the extent of impact of epidemic prevention and control measures on late delivery of the property and the causal relationship thereof, so as to determine whether the relevant provisions of the above laws on force majeure are applicable. exempting the Developer partially or wholly from its liability for breach of contract.

2. Due to the impact of epidemic prevention and control, if the developer fails to hand over the property within the specified time limit, can the purchaser request to terminate the contract?

If the overdue delivery of the property is confirmed to be the impact of epidemic prevention and control and there is no obstacle to the continued development and construction of commercial houses after the epidemic prevention and control, as the epidemic prevention and control are force majeure causes not attributable to the developer, the purchaser cannot terminate the contract based on this reason. However, the developer shall perform the obligation of notifying the purchaser in accordance with the law and the expanded losses caused by its failure to notify the purchaser in a timely manner will not be exempted. If the delay in handing over the property by the developer is not solely affected by epidemic prevention and control measures, after the factors affecting the epidemic are excluded, the case will be dealt with according to the degree of breach by the developer and the specific provisions of the contract on liability for breach of contract and the relevant laws.

3. Due to the impact of epidemic prevention and control, if a purchaser fails to sign a formal housing purchase contract in a timely manner after signing the commodity housing pre-purchase contract and paying the down payment, can the purchaser request the termination of the pre-purchase contract and the refund of the down payment?

Article 4 of the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Cases Involving Disputes over Contracts on Purchase and Sale of Commodity Premises provides that: "Where a Seller receives an down payment from a buyer through subscription, order, or advance reservation as guarantee for the conclusion of a contract on purchase and sale of commodity premises, in the event of failure to conclude the contract on purchase and sale of commodity premises due to reasons attributable to one of the parties concerned, the matter shall be handled in accordance with the provisions of law on down payment; in the event of failure to conclude the contract on purchase and sale of commodity premises due to reasons not attributable to either of the parties concerned, the Seller shall return the down payment to the buyer."Therefore, as long as the buyer can prove that a formal contract on purchase and sale of commodity premises could not be concluded due to the impact of epidemic prevention and control, the buyer may request termination of the pre-purchase contract and refund the down payment.

4. If a buyer is unable to make mortgage payment in a timely manner due to the impact of epidemic prevention and control, can the Seller terminate the contract on purchase and sale of commodity premises or request the buyer to pay liquidated damages?

If the buyer can prove that the mortgage payment cannot be made in time due to the impact of the epidemic, and the buyer's failure to make timely payment is only limited to a reasonable period of time due to the epidemic. If the Seller requests termination of the contract or payment of liquidated damages, the buyer may defend by force majeure, which requests generally shall not be supported. If the Seller requests termination of the contract due to the delay of payment obligation of the buyer beyond a reasonable period of time, the case shall be handled in accordance with the law and the principle of equity, provided that the request is not attributable to the fault of both parties.

(II) Disputes over lease contracts

1. May a lessee request reduction or exemption of the rent for premises and office buildings that cannot be used temporarily during the epidemic period?

According to the Guiding Opinions of Su Gao Fa Dian [2020] No.124, where a lessee requests for reduction or exemption of part of the rent or extension of the lease term due to the epidemic due to the inability of the lessee to use the subject matter of the lease due to the epidemic, such request shall generally be upheld. The lessee leases the property for use. For the buildings and venues whose work is suspended or suspended due to the epidemic and whose use is not attributable to both parties, the lessee may claim the defense of force majeure or may reduce or exempt the rent in accordance with the policies. For example, Article 7 of the Nanjing Municipal Party Committee and the Nanjing Municipal People's Government (Ning Wei Fa [2020] No.4) stipulates that micro, small and medium-sized enterprises that have difficulties renting the property for state-owned assets for business use shall be exempted from rents for one month and reduced by half for two months. The property owner (landlord) is encouraged to reduce or exempt the rent of the house rented for other business use, and the reduction or exemption shall be settled by both parties through negotiation. If no agreement is reached through negotiation, the lease term may be extended or the rent may be reduced or extended as the case may be in accordance with Article 5 of the Contract Law and the judicial documents of the provincial and municipal courts and based on the rules on change of circumstances. Reasonably sharing the losses arising from epidemic prevention and control. For example, for catering enterprises, consideration may be given to the closing time, lease term and performed term, off-season or peak season of the industry and other factors to reasonably request reduction or exemption of rent. For the majority of buildings, properties and venues that are still in operation, the lease contracts have no legal obstacle to the performance of such contracts, and generally the lease contracts cannot be exempted from liability on the ground of force majeure. However, if the impact of the epidemic is significant, the lessee may also request the people's court to grant reduction or exemption on the basis of the principle of fairness on change of circumstances.

2. If the lease of houses and venues is affected by epidemic prevention and control, can a lessee request termination of the contract?

Where the house or venue leased is for short-term use, and the contract cannot be performed due to the impact of epidemic prevention and control, and the contract cannot be amended, for example, if the lease is for tourist purposes or it is impossible to operate folk activities at temple fairs and lantern festivals during the Spring Festival, the lessee may claim termination of the contract due to force majeure. For long-term lease for self-use, it is generally not appropriate to terminate the contract in advance if the lease term is relatively long, and the lessee who fails to pay the rent in a timely manner has a long remaining term, let alone the lessee has no right to unilaterally rescind the contract. If the cost of continuing to perform the lease contract is too high due to epidemic prevention and control, and it is obviously unfair to continue to perform the lease contract, the lessee may also request early termination of the lease contract in accordance with Article 48 of the Minutes of the National Work Conference for Civil and Commercial Trials in 2019, but shall pay liquidated damages as per the contract.

3. If the lease contract cannot be performed due to epidemic prevention and control, shall the deposit paid by the lessee be refunded?

Article 122 of the Judicial Interpretation of the Law of Guarantee provides that "if the master contract is not performed due to force majeure or any accident, the penalty rule of deposit shall not apply". If the lessee can provide evidence to prove that its failure to perform the contract was indeed caused by epidemic force majeure, the lessor shall refund the deposit paid by it.

4. Can the lessor terminate the contract on the ground that the lessee delays in paying the rent during the epidemic prevention and control period?

Monetary obligations are generally not applicable to epidemic as a defense of force majeure, for which the lessee shall bear the burden of proof. If it is proved that the failure to pay the rent is caused by the impact of epidemic (such as the lessee is a COVID-19 patient, suspected of being infected or close contact with the lessee being isolated and treated), the lessor shall not request to terminate the contract on such ground. However, if the lessee fails to pay the rent upon reminder within a reasonable period after the impact of the epidemic is eliminated, the lessor may claim to terminate the contract in accordance with the provisions of the lease contract or the laws.

(III) Construction Contract

1. If the construction period is delayed due to epidemic prevention and control, shall the construction party be liable for breach of contract?

Any delay in the construction period caused by epidemic prevention and control as stipulated in documents of the General Office of the Ministry of Housing and Urban-Rural Development (Jian Ban Shi [2020] No. 5) is force majeure. If the construction period is extended due to epidemic prevention and control measures such as traffic control, local personnel flow control, and government deadline for resumption of work, if the construction party claims that the construction party shall bear the liability for breach of contract, the matter shall be handled according to the contract between the parties. If there is no agreement or no clear agreement in the contract between both parties, the construction party may provide evidence to prove the causal relationship between the extension of the construction period and the delayed resumption of work and the control of personnel flow. If the construction period is extended due to epidemic prevention and control, the construction party may defend itself by force majeure and part or all of its liability shall be exempted, unless otherwise provided by law.

2. Can the construction party claim against the construction party for the losses during the epidemic suspension period?

If the construction party claims losses from work suspension from the construction party due to the impact of the epidemic prevention and control, the causal relationship between the epidemic prevention and control and the inability to perform the contract shall be reviewed, the evidence of additional expenses incurred by the contractor in response to the epidemic shall be investigated, and whether the parties have taken active remedial measures to eliminate the impact shall be verified. If no relevant agreement is made in the construction contract, the losses shall be reasonably shared between the parties according to the principle of fairness.

3. If a construction contract provides that the contractor contracts labor and materials, how to deal with the material supply due to epidemic prevention and control?

If the supply of cement, steel and other materials is delayed due to the impact of epidemic prevention and control, the constructor shall notify the employer of the solutions through negotiation in time. If necessary, the performance method of the contract may be changed or the construction period may be extended to avoid further losses. If there are still losses on this basis, the losses shall be handled according to the contract first. If there is no agreement or the agreement is unclear, the change of situation may be applied and shall be shared between the parties according to the principle of fairness.

4. If the prices of construction materials rise due to the impact of epidemic prevention and control, can the project price be adjusted accordingly?

The sharp rise in the prices of construction materials is indeed caused by the impact of epidemic prevention and control, so it would be obviously unfair if the contract were to be performed continuously. Therefore, the settlement of project price shall be based on the agreement between the parties first. If the contract signed by both parties has explicit agreement on the liabilities for force majeure, such as the Construction Contract (Model Text) (GF-2017-0201), the agreement in the contract shall prevail. If there is no explicit agreement or such agreement is unclear, the change of situation shall apply and be shared between the parties according to the principle of fairness.

5. If the costs of construction labor costs and other costs are increased due to the impact of epidemic prevention and control, can the project price be adjusted accordingly?

If the labor costs are increased due to the impact of epidemic prevention and control, the settlement of project price shall be made pursuant to the contract between both parties. If there is no agreement or no clear agreement on this in the contract signed by the parties, local documents concerning adjustment of labor costs shall be subject to. If Jiangsu Provincial Department of Housing and Urban-Rural Development (Su Jian Jia [2020] No. 20) provides that the relevant clauses of contract force majeure shall apply to the increase in losses and expenses caused by prevention and control of COVID-19 epidemic. The employer and the contractor shall sign a supplementary agreement to determine the price adjustment methods reasonably based on the actual conditions of the project. If the document on adjustment of labor costs has no regulation on such case, the change of situation shall apply and be shared between the parties according to the principle of fairness.

6. If the decoration and renovation projects are delayed due to the epidemic, can the construction party request extension of the construction period?

If the contract of decoration and renovation projects is concluded prior to the conclusion of epidemic prevention and control, the construction period may be required to be extended and the contractor will not be liable for breach of contract. If the parties have any dispute over the extension of the construction period, losses from work stoppage, and the costs of acceleration after resumption of work, and the contractor defends itself on the ground of force majeure or change of situation, if during the epidemic prevention and control period, the parties claim to extend the construction period on the ground of epidemic prevention and control, such claims are generally not supported by the court.

The parties that sign a contract on purchase and sale of commodity premises, house leasing and construction projects under the principles of good faith, fairness and legality shall, after the occurrence of an epidemic, timely consult the contractual stipulations, relevant policy documents, laws and judicial opinions, consider the impact of the epidemic situation and prevention and control measures on the contract, choose force majeure or change of situation rules to defend the contract and, at the same time, keep evidence and promptly notify the other party to the contract to fully consult with it to strive for fair and reasonable proper resolution of contract disputes.

 

[Policy/Judicial Basis]

1. Notice on Strengthening the Prevention and Control of the COVID-19 Epidemic and Promoting Enterprises to Start and Resume Work in an Orderly Manner (Jian Ban Shi [2020] No.5) promulgated by the General Office of the Ministry of Housing and Urban-Rural Development on February 26

2. Guiding Opinions on Performance of Contract for Construction of Building and Municipal Infrastructure Projects and Adjustment of the Project Price under the Impact of the COVID-19 Epidemic (Su Jian Jia [2020] No.20) promulgated by Jiangsu Provincial Department of Housing and Urban-Rural Development on February 14

3. Notice of Nanjing Municipal Committee of the Communist Party of China on Promulgation of Several Measures for Promoting the Stable Development of Micro, Small and Medium-sized Enterprises (Ning Wei Fa [2020] No.4)

4. Minutes of the National Work Conference for Civil and Commercial Trials of Courts promulgated by the Supreme People's Court on September 11, 2019 (Fa [2019] No.254)

5. Guiding Opinions on Providing Judicial Services and Guarantee for Epidemic Prevention and Control in Accordance with the Law promulgated by the High People's Court of Jiangsu Province on February 13, 2020

6. Guiding Opinions on Regulating Civil and Legal Disputes Involving the COVID-19 Epidemic Promulgated by the Civil Tribunal No.1 of Jiangsu High People's Court on February 26, 2020 (Su Gao Fa Dian [2020] No.124)

7. Implementing Opinions on Proper Trial of Commercial Contract Dispute Cases to Promote the Stable Development of Micro, Small and Medium-sized Enterprises promulgated by Nanjing Intermediate People's Court on February 12, 2020

8. Twelve Guidelines on Financial Trials during the Epidemic Prevention and Control Period formulated by Nanjing Intermediate People's Court on February 17, 2020

9. Several Opinions on Proper Trial of Real Estate Cases Involving the COVID-19 Epidemic Situation promulgated by Nanjing Intermediate People's Court on February 20, 2020

10. Opinions of Nanjing Intermediate People's Court on Providing Judicial Service Guarantee to Support Enterprises in Resumption of Work and Production promulgated by Nanjing Intermediate People's Court on February 24, 2020

11. Nanjing Intermediate People's Court and Shanghai Municipal Administration of Culture and Tourism jointly promulgated the Opinions on Strengthening Joint Coordination and Properly Handling Tourism Disputes Involving the COVID-19 Epidemic Situation in Accordance with the Law on February 28, 2020

12. Opinions on Effectively Performing Trial Functions by Courts in the Whole City to Provide Effective Judicial Services and Guarantee for Epidemic Prevention and Control in Accordance with the Law (Yan Zhong Fa [2020] No.12) formulated by Yancheng Intermediate People's Court on February 7, 2020

13. Yancheng Intermediate People's Court promulgated the Opinions on Regulating the Trial of Real Estate Disputes Involving the COVID-19 Epidemic on March 12, 2020 (Yan Zhong Fa [2002] No.24)

14. Guidelines on the Trial of Cases Involving Disputes over Sales Contracts Involving the COVID-19 Epidemic Situation (Yan Zhong Fa [2020] No.30) promulgated by Yancheng Intermediate People's Court on March 18, 2020

15. Taizhou Intermediate People's Court promulgated the Ten Opinions on Carrying out the Special Action of Rule of Law to Support the Development of Small and Medium-sized Enterprises during the Period of Epidemic Prevention and Control (Tai Zhong Fa [2020] No.6)

16. Guiding Opinions on Providing Judicial Guarantee to Support Enterprises in Battling Epidemic Situation (Zhen Zhong Fa [2020] No.12) promulgated by Zhenjiang Intermediate People's Court on February 7, 2020

17. Implementing Opinions on Providing Firm Judicial Guarantee to Win the Battle of Prevention and Control of the COVID-19 Epidemic (Huai Zhong Fa [2020] No.9) promulgated by Huai'an Intermediate People's Court on February 8, 2020)

18. Announcement on Ten Measures on Severely Punishing Ten Types of Crimes Obstructing the Fight against Epidemic and Protecting Enterprises in Accordance with the Law (Su Zhong Fa [2020] No.9) promulgated by Suqian Intermediate People's Court on February 8, 2020)

19. Opinions on Lawfully Preventing and Controlling Epidemic, Safeguarding Enterprises' Stable Operation and Promoting Development (Chang Zhong Fa [2020] No.8) promulgated by Changzhou Intermediate People's Court on February 9, 2020)

20. Specific Measures on Serving and Safeguarding the Development of Small, Medium and Micro Enterprises under the Situation of Epidemic Prevention and Control promulgated by Xuzhou Intermediate People's Court on February 6, 2020

21. Opinions on Providing Effective Judicial Services and Guarantee for Epidemic Prevention and Control in Accordance with the Law (the "Opinions") promulgated by Lianyungang Intermediate People's Court on February 10

22. Implementing Opinions on Providing Judicial Service Guarantee for Foreign-related Enterprises under the Situation of Epidemic Prevention and Control Promulgated by Wuxi Intermediate People's Court on February 21, 2020

23. Gao Chun Court promulgated Eight Measures on Fully Exercising Trial Functions to Support Enterprises' Response to Epidemic Situation (Gao Fa [2020] No.5) on February 7, 2020

24. Implementing Opinions on Providing Judicial Guarantee for the Development of Enterprises during the Period of Epidemic Prevention and Control formulated by Yixing Court on February 7, 2020

25. Opinions of Nanjing Lishui District People's Court on Providing Judicial Service and Guarantee for Enterprises' Resumption of Work and Production during the Period of Epidemic Prevention and Control (Li Fa [2020] No.7) formulated by Lishui Court on February 11, 2020

26. Jianwei Court promulgated 13 Measures on Judicial Guarantee for Epidemic Prevention and Control on February 11, 2020

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