As of 19 February 2020, the novel coronavirus (2019-nCoV, the "Coronavirus") has affected 28 countries and regions according to publicly available information. As an emergency response to the outbreak of the Coronavirus, Chinese national and local regulators have adopted various measures to minimize and control the movement of persons to prevent the further spread of the epidemic but these measures have caused the suspension of work across large swathes of the economy.
The stoppage is likely to be particularly acute in the construction and infrastructure sectors, which normally mobilise large quantities of labour. As a consequence, Chinese contractors are already becoming less competitive in the market with concerns increasing as to their capability and capacity to undertake international projects.
Whether the outbreak of the Coronavirus amounts to an event of force majeure or change of circumstance under the common law and the PRC law (such that a contracting party may avoid liability in respect of the performance of its obligations), may be informed by the regulations and court decisions promulgated around the time of the Severe Acute Respiratory Syndrome, or ("SARS"). In this note, we will also discuss the impact of the Coronavirus for both overseas and domestic construction projects, as well as recommendations for contractors involved in those projects.
We look at two possible claims arising out of the outbreak: the first for 'force majeure' and the second for 'change of circumstance' under PRC law.
The Coronavirus may constitute 'force majeure' under PRC law
The "Notice of the Supreme People's Court on Conducting the Trial and Enforcement of the People's Court in the Period of the Prevention and Control of Infectious Atypical Pneumonia" (《 最高人民法院关于在防治传染性非典型肺炎期间依法做好人民法院相关审判、执行工作的通知》 (Fa  No. 72, (the "Notice") may provide some guidance.
Article 3 of the Notice provides that "...disputes caused by the government and relevant departments' administrative measures to prevent the SARS epidemic that directly result in the contract being unable to be performed, or due to the impact of the SARS epidemic, the parties to the contract being unable to perform at all, should be dealt properly in accordance with the provisions of Articles 117 and 118 of the 'Contract Law.'" (provisions that deal with force majeure). Although this regulation has now expired, since the epidemic prevention and control measures taken by Chinese regulators due to the Coronavirus are not easily foreseeable, avoidable, or surmountable, these measures may be considered to give rise to force majeure circumstances by analogy.
This interpretation has been confirmed in the recent civil judgment by the Supreme People's Court in Zui Gao Fa Min Zai No. 220, which agreed with the first and second instance courts that SARS was indeed an event of force majeure. Similarly, the Sanya Intermediate People's Court in its civil judgment ((2005) Sanya Min Yi Zhong Zi No. 79), concluded that the ban issued by the Sanya City government during the SARS period that prohibited construction companies from hiring foreign migrant workers had been the cause of the contractor's failure to recruit sufficient engineering staff to complete construction contracts entered into prior to the ban. Therefore, the SARS epidemic constituted 'force majeure', relieving the contracting party of liability for delay and the breach of its obligations under the relevant contracts.
Similarly, on 10 February 2020, the spokesman of the Commission of Legislative Affairs of the National People's Congress, in response to public queries, explained that "...the type of epidemic prevention and control measures taken by local governmental departments that make a party unable to perform its obligations constitutes a force majeure event, being one which is unforeseeable, unavoidable and insurmountable. According to the PRC Contract Law, if a contract cannot be performed due to force majeure, liability can be partially or wholly excused depending on the extent of influence of force majeure, except as otherwise provided by law. "
Given that a majority of cities in Hubei province are the subject of a lockdown and that other provinces have largely extended the holiday (with quarantining and remote working becoming the norm thereafter), we can expect that a lack of human resources and a delay to the milestones of construction projects will continue for some time.
If the epidemic prevention and control measures undertaken by national and local governmental departments do result in a late return of construction personnel to project sites, progress may also be impacted by shortages of materials or mandatory quarantine affecting the sites. These circumstances are likely to be regarded as force majeure events. In addition, Article 17.1 of the Construction Engineering Contracts (Model Text) (GF-2017-0201, "Construction Model Contract, " 建设工程施工合同（示范文本）) has expressly listed "epidemic" as one of the acknowledged force majeure events.
That being said, in order for force majeure to excuse liability, the contracting party needs to prove that (i) the contract was signed prior to the outbreak of the Coronavirus; (ii) the force majeure event was incurred in the course of performance; (iii) the outbreak was the cause of the non-performance; and that (iv) the party claiming force majeure had conducted mitigating measures to limit the loss to the counterparty, providing timely notice and proof.
Although the control measures may be considered as a force majeure event under certain circumstances, if the contract can still be performed and the only impact would be on a party's financial standing (perhaps because the contract becomes more costly to perform), the affected party can be required to perform its obligations under the contract.
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