The current coronavirus (COVID-19) outbreak has seen an increasing number of Chinese businesses seeking exemptions for non-performance or non-compliance under their contracts. The economic effects are already rippling worldwide as supply chains and commodities markets are being thrown into turmoil.

Force Majeure Provisions in Chinese Contracts

Force majeure provisions in contracts establish the circumstances under which a party’s obligations under the contract may be suspended, or otherwise altered, due to events deemed to be out of the affected party’s control.

A force majeure event can result in any number of effects such as a party’s exemption from performing its contractual obligations (important to the non-affected party), potential notification requirements (important to the affected party), or even the possibility of terminating the contract altogether (important to all parties).

In a recent study, we used Kira to look at commercial contracts involving Chinese entities and found that just 72% of 130 contracts reviewed included force majeure provisions.

In fact, according to State news agency Xinhua, the China Council for the Promotion of International Trade has issued 4,811 force majeure certificates as of March 3rd due to the epidemic. The contracts affected by those certificates are worth 373.7 billion Chinese yuan (US$53.79 billion), according to the report.

COVID-19’s Global Impact

The worldwide outbreak has caused substantial disruptions to supply and distribution channels,threatening an economic downturn and bringing attention towards contracts and the possibility of invoking force majeure provisions. With COVID-19 cases rising around the globe, is your organization (or are your clients’) prepared to handle the consequences?

Learn more from our expert

Join our upcoming webinar: ‘The Impacts of COVID-19 on Contracts: What We Learned About Force Majeure in Chinese Contracts‘ – which will be held on Tuesday, March 24th, at 11AM EST.

During the free webinar, Legal Knowledge Engineering Associate, Jennifer Tsai, will walk you through the impacts that COVID-19 can have on your commercial contracts, and what steps your organization, or your clients’ organizations, can take to minimize any potential impact of force majeure and other clauses in them.

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