Force majeure is a principal legal concept in contract law, but what a Chinese court treats as force majeure is not the same as what a court in London or New York treats as force majeure. A force majeure clause in a China contract should be drafted for Chinese law and Chinese judicial practice, not for a common law jurisdiction’s understanding of force majeure. What’s written and what’s enforceable are two different things.
The Chinese Law Concept
Force majeure in Chinese contract law is defined by the Civil Code as an objective circumstance that is unforeseeable, unavoidable, and insurmountable — and that makes it impossible to perform the contract. The three elements — unforeseeable, unavoidable, insurmountable — must all be satisfied. An event that’s foreseeable — a predictable weather event, a foreseeable regulatory change, a foreseeable market fluctuation — is not force majeure. An event that’s avoidable — the party could have taken measures to prevent the event or its consequences — is not force majeure. An event that’s surmountable — the party could overcome the obstacle through reasonable efforts — is not force majeure.
The Chinese definition emphasizes objective impossibility — the performance must be objectively impossible, not merely more difficult or more expensive. A shipping delay that makes the goods arrive two months late is a delay, not an impossibility, unless the contract is a time-sensitive contract where late performance is equivalent to non-performance. A price increase that makes the contract unprofitable is economic hardship, not force majeure — the performance is still possible, it’s just more expensive.
The Chinese definition contrasts with the common law concept of force majeure, which is typically a contractual concept defined by the contract rather than by statute. In a common law jurisdiction, the contract defines what events constitute force majeure, and the contract defines the consequences. In China, the Civil Code provides the statutory definition, and the contract can specify the events but can’t override the statutory criteria that the event must be unforeseeable, unavoidable, and insurmountable.
What Chinese Courts Accept
Chinese courts have accepted the following events as force majeure: natural disasters — earthquakes, floods, typhoons — that destroy the factory or the goods, war and armed conflict that prevent the shipment of goods, government acts — export bans, import bans, mandatory factory closures — that specifically prohibit the performance of the contract, and widespread epidemic-related restrictions — the COVID-19 lockdowns — that make performance physically impossible.
Chinese courts have rejected the following events as force majeure: market price changes — the price of raw materials increased, making the contract unprofitable — economic downturn — the buyer’s business declined, and the buyer no longer needs the goods — labor disputes — the factory’s workers went on strike, and the factory couldn’t produce — and supplier failure — the party’s supplier failed to deliver, and the party couldn’t perform the contract without the supplier’s input.
The supplier failure rejection is significant for a foreign company that contracts with a Chinese manufacturer. The Chinese manufacturer that says “our supplier of a key component failed to deliver, so we can’t manufacture your product — force majeure” is wrong. The manufacturer’s supplier failure is not force majeure because it’s not an objective circumstance — it’s a commercial risk that the manufacturer bears. The manufacturer could have contracted with multiple suppliers, could have maintained an inventory of the key component, or could have taken other measures to mitigate the supplier failure risk.
The epidemic-related restrictions are the most recent and the most developed category of Chinese force majeure jurisprudence. The COVID-19 period generated many force majeure disputes, and the courts developed a body of case law on what constitutes a force majeure epidemic event. The key factors are whether the government restriction specifically prohibited the performance — a general lockdown that closed all businesses is force majeure for a business that was closed by the lockdown; a restriction that applied to certain industries but not to the contract party’s industry is not — and whether the party could have mitigated the impact — a party that could have shifted production to an unaffected location but didn’t is not excused.
The Doctrine of Changed Circumstances
Chinese contract law recognizes a doctrine of changed circumstances — a fundamental change in the circumstances on which the contract was based, occurring after the contract was concluded, that was not foreseeable by the parties and that is not a commercial risk — that allows the affected party to request the court to modify or terminate the contract.
The changed circumstances doctrine is distinct from force majeure. Force majeure makes performance impossible. Changed circumstances make performance possible but fundamentally unfair — the cost of performance has increased dramatically, or the value of the counter-performance has decreased dramatically, to the extent that enforcing the contract as written would be manifestly unfair.
The changed circumstances doctrine is the legal basis for the foreign company that contracts with a Chinese manufacturer and faces a 300% increase in the cost of a key raw material — the contract is still performable, but performing it at the original price would bankrupt the manufacturer. The manufacturer can petition the court to modify the contract — increase the price — or, if the modification doesn’t resolve the unfairness, to terminate the contract.
The changed circumstances doctrine is more flexible than force majeure, but it’s also more difficult to invoke. The party must apply to the court or the arbitration tribunal — the party can’t unilaterally modify or terminate the contract under the changed circumstances doctrine. The court or the tribunal has the discretion to modify or terminate the contract, and the outcome is uncertain. A party that unilaterally modifies or terminates the contract on the ground of changed circumstances — without a court order — is in breach of contract.
Drafting the Force Majeure Clause
A force majeure clause in a China contract should start with the statutory definition — an event that’s unforeseeable, unavoidable, and insurmountable — and then list the specific events that the parties agree constitute force majeure. The list should include natural disasters, war, terrorism, government acts, epidemic-related restrictions, and any industry-specific events — a change in the regulatory framework that makes the product illegal to sell, for example.
The list doesn’t override the statutory criteria — a listed event that’s foreseeable or avoidable is still not force majeure — but the list provides guidance to the court or the tribunal on the parties’ intention at the time of contracting. An event that’s debatable under the statutory criteria — was the epidemic restriction truly unavoidable, or could the party have taken measures that would have avoided the impact — may be accepted as force majeure because the parties listed it.
The clause should specify the consequences of a force majeure event. The affected party should be excused from performance to the extent that the performance is prevented by the force majeure event, and the time for performance should be extended by the duration of the force majeure event. If the force majeure event continues for more than a specified period — 60 days, 90 days, 120 days — either party should have the right to terminate the contract without liability.
The clause should also include a notice obligation — the party affected by a force majeure event must notify the other party within a specified period, typically 14 days, of the occurrence of the event, its expected duration, and its effect on the party’s ability to perform. A party that fails to give notice within the specified period loses the right to claim force majeure for the period before the notice was given.
The clause should include a mitigation obligation — the affected party must take reasonable measures to mitigate the effect of the force majeure event on its performance. A party that sits back and does nothing to overcome the obstacle, relying entirely on the force majeure clause, may be found to have failed to mitigate, and the force majeure defense may be rejected or limited.
The COVID-19 Legacy
The COVID-19 period produced a significant volume of force majeure litigation in China, and the cases have clarified what works and what doesn’t in a Chinese force majeure dispute. The most important lesson is documentation. A party that claims force majeure must document the force majeure event — the government order, the lockdown notice, the quarantine requirement — and the causal connection between the event and the non-performance. A party that says “we couldn’t perform because of the lockdown” without pointing to a specific government order that prohibited the specific performance is unlikely to succeed.
The second lesson is the China Council for the Promotion of International Trade — CCPIT — force majeure certificate. During COVID-19, the CCPIT issued force majeure certificates to Chinese companies that were affected by the epidemic restrictions. The certificate is a factual statement by the CCPIT that a force majeure event occurred — the government imposed a lockdown, the factory was closed, the port was restricted — and it’s evidence that the event occurred, but it’s not a legal determination that the event constitutes force majeure for the specific contract.
A CCPIT certificate is helpful evidence, but it doesn’t relieve the party of the obligation to prove that the event was unforeseeable, unavoidable, and insurmountable, and that it specifically prevented the performance of the contract. The certificate is a starting point, not a conclusion.
The third lesson is that force majeure disputes are fact-specific. The outcome depends on the specific facts — the specific contract, the specific event, the specific measures the party took or didn’t take — and general propositions about force majeure are less useful than a detailed analysis of the specific situation. A party that’s facing a potential force majeure situation should obtain legal advice on the specific facts before invoking the force majeure clause, and should document the facts as they develop.
