Tomorrow and the unexpected we never know who will come first. In 2020, a sudden "epidemic" disrupted our peaceful life. At the same time, it also makes the "force majeure", which has always been regarded as a "supporting role" of the contract, break into the public's field of vision. Under the "epidemic", we have to re-examine "force majeure".

What is "force majeure"? Article 180 of the General Provisions of the Civil Law stipulates: "If a person is unable to perform a civil obligation due to force majeure, he shall not bear civil liability. Where laws provide otherwise, follow those provisions. Force majeure means objective circumstances that cannot be foreseen, avoided and overcome".

Fangduoduo rents out its house in a city to Company A for Company A to operate the hotel. The two parties signed the Housing Lease Contract on January 1, 2016, with a lease period from January 1, 2016 to December 31, 2026, and a rent of RMB 1 million per year. Due to the poor market environment, the hotel has been operating in difficulty since its opening, and has lost more than 5 million yuan so far. When the new crown epidemic broke out in January 2020, the government launched a first-level response to major public health emergencies, implemented traffic restrictions, travel bans, and the hotel industry stalled, and Company A's hotel was on the verge of closure. To this end, on March 10, 2020 and March 30, 2020, Company A twice sent letters to Fangduoduo on the grounds that "force majeure made it impossible to achieve the purpose of the contract", requesting that the lease agreement signed by the two parties be terminated from May 1, 2020. The negotiations between the parties were unsuccessful.

After hearing, the court ruled as follows:

1. According to Article 94 of the Contract Law, a party may rescind a contract under any of the following circumstances: (1) the purpose of the contract cannot be achieved due to force majeure; ...... In this case, Company A argued that the outbreak of the epidemic and the stagnation of hotel operations led to huge losses, which was force majeure and could not achieve the purpose of the contract. In this regard, this court believes that because the new crown epidemic is a public emergency, it is unforeseeable, unavoidable, and force majeure. Although the epidemic is a force majeure, which has caused Company A's operation of the hotel to stagnate for a period of time, but at this stage, all industries have resumed work and production, and the hotel can also resume operation, the epidemic has not reached the extent that the purpose of the contract of Company A cannot be achieved, and it can still continue to use the house involved in the case for the operation of the hotel, which does not comply with the provisions of Article 94 of the Contract Law to terminate the contract.

2. The hotel's operating loss is caused by many reasons, both epidemic reasons and Company A's own operating reasons, among which the hotel loss caused by its own operation is the risk that Company A should foresee and bear when signing the housing lease contract and performing the contract, and Company A requests the termination of the housing lease contract between the two parties on the grounds of the hotel's operating loss, which is a transfer of the risk to the Fangduo party, which does not comply with the provisions of the Contract Law on the principle of fairness.

3. Company A's reason for requesting rescission of the contract also does not meet the conditions for rescission agreed in the contract between the two parties, that is, its request to rescind the contract lacks the basis for the contract.

In this case, Company A relied on Article 94 of the Contract Law to rescind the contract under any of the following circumstances: (1) the purpose of the contract could not be achieved due to force majeure; ..."as a ground for rescission of the contract. So, according to the current effective law, can Company A terminate the lease contract on the ground of "change of circumstances"?

Article 26 of the Interpretation (II) of the Supreme People's Court on Several Issues Concerning the Application of the Contract Law of the People's Republic of China (hereinafter referred to as "Interpretation (II)") stipulates that "if after the conclusion of the contract, a major change occurs that is not a commercial risk caused by force majeure that the parties could not foresee at the time of the conclusion of the contract, and the continued performance of the contract is obviously unfair to one of the parties or cannot achieve the purpose of the contract, and the parties request the people's court to modify or rescind the contract, the people's court shall follow the principle of fairness." and determine whether to change or terminate it in light of the actual circumstances of the case." It can be seen from this that the Interpretation (II) of the Contract Law expressly excludes force majeure from the change of circumstances. Therefore, if the continued performance of the contract is obviously unfair to one party or fails to achieve the purpose of the contract due to the "epidemic" at this stage, the contract cannot be rescinded in accordance with the principle of "change of circumstances" in Interpretation (II) of the Contract Law.

Sou! Sou! Sou! 2021 arrives, the Civil Code comes into effect, when the "change of circumstances" meets "force majeure", can the parties to the contract terminate the lease contract on the grounds of "change of circumstances"?

On May 28, 2020, the Civil Code of the People's Republic of China (hereinafter referred to as the "Civil Code") was officially released. Article 533 of the Civil Code stipulates: "After the conclusion of a contract, if there is a major change in the basic conditions of the contract that the parties could not foresee at the time of the conclusion of the contract and is not a commercial risk, and the continued performance of the contract is obviously unfair to one of the parties, the adversely affected party may renegotiate with the other party; If the negotiation fails within a reasonable period of time, the parties may request the people's court or arbitration institution to modify or rescind the contract. The people's court or arbitration institution shall, in light of the actual circumstances of the case, modify or terminate the contract in accordance with the principle of fairness." With the promulgation of the Civil Code, the principle of change of circumstances has been formally established at the legal level, and force majeure has not been explicitly excluded from the change of circumstances. Therefore, from 1 January 2021, when a "change of circumstances" meets a "force majeure", the parties may choose to apply the "change of circumstances" as the reason for rescission of the contract, or they can choose to apply "force majeure" as the reason for rescission of the contract.

What is "business risk"? The Notice of the Supreme People's Court on Several Issues Concerning the Trial of Civil and Commercial Contract Dispute Cases under the Current Situation (July 7, 2009, Fa Fa [2009] No. 40) clarifies that commercial risks are inherent risks in engaging in commercial activities, such as changes in supply and demand and price fluctuations that have not yet reached the degree of abnormal change. A change of circumstances is an inherent risk in a non-market system that the parties could not foresee at the time of the conclusion of the contract. When determining whether a major objective change is a change of circumstances, the people's court shall pay attention to factors such as whether the type of risk is unforeseeable in advance in the general concept of society, whether the degree of risk far exceeds the reasonable expectations of normal people, whether the risk can be prevented and controlled, whether the nature of the transaction falls within the usual range of "high risk and high return", and identify changes in circumstances and commercial risks in individual cases in light of the specific conditions of the market.

In summary, to distinguish between a change of situation and a commercial risk, it is necessary to refer to the contractual agreement and analyze it from the aspects of predictability, attribution and consequences.