Since 2022, the COVID-19 has swept through Shencheng again. In order to effectively curb the spread of the epidemic in large areas, Shanghai has implemented such epidemic prevention measures as temporary "regional closure and control", "shutdown and production suspension of enterprises and companies". This will inevitably have an impact on the timely performance of sales contracts for goods, commodities, and housing. For example, sales contract disputes caused by the buyer's failure to pay the goods on schedule, and the seller's delay in delivering the goods are expected to increase significantly. During the epidemic prevention and control period, if the sales contract fails to pay for the goods or deliver the goods as agreed, can the parties claim cancellation of the contract or exemption from liability on the grounds of force majeure? On April 10, 2022, the Shanghai Higher People's Court issued the Third Series of Questions and Answers on the Application of Law in Cases Involving the COVID-19 (2022 Edition), in which Question 2 points out that according to Article 180 of the Civil Code of the People's Republic of China, force majeure means unforeseeable, unavoidable and insurmountable objective conditions, and the epidemic situation and epidemic prevention and control measures are generally force majeure prescribed by law; "If the purpose of the contract cannot be achieved due to the epidemic situation or epidemic prevention and control measures, the parties may claim to terminate the contract in accordance with the provisions of Article 563, Paragraph 1, Item 1, of the Civil Code of the People's Republic of China;"; "If the epidemic situation or epidemic prevention and control measures prevent the performance of the contract, the parties may claim exemption or partial exemption in accordance with the provisions of Article 590, paragraph 1, of the Civil Code of the People's Republic of China.".

The author believes that when parties claim exemption on the grounds of an epidemic situation, they should distinguish between specific circumstances and not always be defined as "force majeure". The existing judgment opinions in this city often consider whether there is a causal relationship between the epidemic situation or epidemic prevention and control measures and factors impeding the performance of obligations, and whether they constitute force majeure, so as to make different decisions.

Previous Cases of Disputes over Epidemic Related Sales Contracts

"If the contract is not properly performed due to an epidemic or epidemic prevention and control measures, a causal relationship between the two constitutes force majeure, and the parties claiming exemption from liability shall be supported."

Case 1: Civil Judgment of the Second Instance on the Dispute over the House Purchase and Sale Contract between Yang Xue and Shen Hao [Case No. (2021) Hu 01 Min Zhong No. 2792 of Shanghai First Intermediate People's Court]

Judges' opinions:

The court of first instance held that Shen Haofang's failure to return to China to sign the contract online as scheduled before March 31, 2020 due to the COVID-19 was not Shen Haofang's subjective malicious act. According to the Agreement on Delayed Transactions between the two parties, if the state and the government make new notices and regulations based on the situation of epidemic prevention and control, resulting in the failure of both parties to perform at the time after the delay, both parties agreed to postpone accordingly in accordance with the provisions of the state and the government. Yang Xue should be aware of this and agree to extend the online signing time. According to the entry and exit policies of Shen Haofang's country of residence, Shen Haofang still cannot return to his country, which is unforeseeable, unavoidable, and insurmountable by Shen Haofang. This is a force majeure event and cannot be attributed to Shen Haofang.

The court of second instance held that, based on the evidence in the case, Shen Haofang and Yang Xue both held Australian passports and returned to Australia after signing the "House Purchase and Sale Contract", "Agreement" and "Deferred Transaction Agreement" with Yang Xue in China. Later, affected by the COVID-19, according to the exit policy issued by Australia and the entry policy issued by China, Shen Haofang could not sign online signing contracts from Australia to China since late March 2020. The online signing contract signed by both parties before March 31, 2020, as agreed in the "Delayed Transaction Agreement", is objectively impossible to perform, and the consequences of this inability are unpredictable, inevitable, and insurmountable for Shen Haofang. Moreover, the "Delayed Transaction Agreement" clearly stipulates that. Both parties unanimously confirm that the failure to fulfill this transaction is due to special circumstances of epidemic prevention and control, and cannot be attributed to either party. Neither party is required to bear legal liability for overdue breach of contract. Accordingly, Shen Haofang's failure to sign an online contract with Yang Xue as agreed cannot be attributed to Shen Haofang. Yang Xue's appeal request is not established, and the first instance judgment should be upheld.

Case 2: Civil Judgment of the Second Instance on the Sales Contract Dispute between Shanghai Qianxiang Mechanical Equipment Co., Ltd. and Ningbo Mafeiyang Textile Technology Co., Ltd. [Case No. (2021) Hu 01 Min Zhong No. 3604 of Shanghai First Intermediate People's Court]

Judges' opinions:

The court of first instance held that the contract in question was a sales contract for the QX-0427 respirator machine. If one party delayed in performing its obligations or committed other breach of contract, which prevented the purpose of the contract from being achieved, the other party could terminate the contract. The delivery date agreed by both parties in the contract is February 29, 2020. Qianxiang Company did not officially notify Mafei Sheep Company that it could take delivery until the end of April, which has seriously breached the contract. According to the order of Qianxiang Company for purchasing equipment from a third party, an order dated February 25, 2020 stated that the arrival time of dozens of sets of QX-0427 mask machine components was between March 1 and March 5, but the actual delivery time was after March 6. However, the delivery date agreed in the contract involved was February 29, so Qianxiang Company's prediction of whether the component procurement and production capacity could keep up with the customer's demand for the number and timing of mask machines was insufficient, "When both parties signed the contract involved, the government had implemented epidemic control measures. Qianxiang Company should have an estimate of whether the contract can be performed normally and the risks involved, and bear the corresponding consequences.". From February to April 2020, when the epidemic was relatively severe, there was a large demand for masks in the market. Due to the delay in delivery by Qianxiang Company, Mafei Sheep Company missed the best production time. Therefore, Qianxiang Company has constituted a fundamental breach of contract. Mafei Sheep Company can terminate the contract involved and request Qianxiang Company to refund the payment for the goods and compensate for the losses. However, the overdue delivery of Qianxiang Company has also been affected to some extent by the epidemic control, and Qianxiang Company should be partially exempted from its responsibilities. The court of first instance cannot accept the fact that Mafeiyang Company did not provide sufficient basis for the fact that its claim for profit loss amounted to 1771200 yuan. According to the report, the court of first instance determined that Qianxiang Company would bear a loss of 50000 yuan based on comprehensive factors such as the degree of fault of the parties, the predictability of losses, and the degree of impact of epidemic control.

The court of second instance held that, in view of the above facts, Qianxiang Company delayed delivery for more than one month, resulting in the loss of a better opportunity for Mafei Sheep Company to produce masks. This delayed delivery behavior resulted in the failure of Mafei Sheep Company to achieve the purpose of concluding the contract involved in the case, and has constituted a fundamental breach of contract. Therefore, according to relevant laws and regulations, if one party delays in performing its obligations or commits other breach of contract, which makes it impossible to achieve the purpose of the contract, the other party can terminate the contract. Therefore, Mafei Sheep Co., Ltd. has the right to terminate the contract. Regarding the consequences of the termination of the contract, from January to May 2020, the city implemented epidemic control measures, and Qianxiang Company claimed that these measures were force majeure situations, lacking factual and legal basis. During the performance of the contract, Qianxiang Company failed to purchase relevant parts in a timely manner, and its production capacity failed to keep up with the needs of customers. In this regard, the company had corresponding shortcomings and should bear corresponding liability for breach of contract. In addition, the court of first instance determined, based on factors such as the degree of fault of the parties involved in the case, the predictability of losses, and the degree of impact of epidemic control, that it was not improper for Qianxiang Company to bear a loss of 50000 yuan, and this court confirmed it.

"If there is no causal relationship between the epidemic or epidemic prevention and control measures and the failure to perform the contract properly, it does not constitute force majeure, and the parties claiming exemption from liability will not be supported."

Case 3: Civil Judgment on the Dispute over the Sales Contract between the Plaintiff Jishunxiang Raw and Cooked Meat Processing Plant in Xi'an Economic and Technological Development Zone and the Defendant Shanghai Xiduo Industrial Co., Ltd. [Case No. (2021) Hu 0120 Min Chu 16270 of the People's Court of Fengxian District, Shanghai]

Judges' opinions:

The court held that after the signing of the Purchase and Sales Contract in question, the plaintiff paid a deposit of 315000 yuan to the account designated by the defendant, but the defendant failed to fulfill its obligation to deliver the goods in accordance with the contract. The delay lasted for more than seven months from the delivery deadline agreed in the contract to the plaintiff's request to terminate the contract. During this period, the plaintiff repeatedly urged the defendant through WeChat to inform him of the delivery time, However, the defendant always failed to provide a clear deadline and believed that it was due to the manufacturer's reasons. However, based on the plaintiff's purchase of the same goods from outsiders, the manufacturer did not delay the delivery due to the epidemic or other reasons. The defendant defended the delay in delivery due to the epidemic and other reasons but did not provide evidence. In view of this, the plaintiff repeatedly urged the defendant to perform its contractual obligations, However, the defendant consistently failed to perform its obligations, resulting in the inability to continue to perform the contract involved, and the plaintiff's contract purpose was not achieved. The plaintiff notified the defendant to terminate the contract through express delivery, WeChat, SMS, and other means, which complied with legal provisions. According to the time limit for the plaintiff to notify the defendant, the court confirmed that the "Purchase and Sales Contract" involved in the case was terminated on June 4, 2021. The defendant believed that the plaintiff was aware that the transaction was futures and there was uncertainty about the delivery time, which was also stipulated in the contract. The defendant did not have any breach of contract, and the plaintiff had always stated that it needed the goods, so it did not agree to assume the responsibility of double return. In this regard, the court believes that the defendant believes that due to epidemic and other reasons, it is unable to perform its contractual obligations in a timely manner, and should provide corresponding evidence. However, the defendant did not provide such evidence, and the defendant was overdue for more than seven months. The failure to deliver the goods as agreed clearly constitutes a breach of contract, so the defendant's defense will not be adopted.

Case Interpretation

The author believes that the above cases are all cases of delayed performance of sales contracts during the epidemic, but "force majeure" is not the "universal magic weapon" for the parties to avoid liability. During the epidemic prevention and control period, if the delayed performing party claims to be exempted from all or part of the liability based on force majeure, the delayed performing party shall bear the corresponding burden of proof to prove that the causal relationship between the epidemic or epidemic prevention and control measures and the impediment to contract performance constitutes force majeure. If the sales contract cannot be performed due to an epidemic, the judge should comprehensively consider such factors as the impact of the epidemic or epidemic prevention and control measures on the performance of the contract, the industry to which the contract belongs, the subject matter of the contract, the time of performance, the place of performance, the severity of the local prevention and control measures, and the close relationship with the severity of the epidemic, and ultimately exempt all or part of the liability according to law. If the delayed performing party is unable to provide corresponding evidence to prove that the delayed performance is caused by epidemic or other reasons, or if the other party has evidence to prove that the main reason for the delayed performance is the fault of the delayed performing party itself, the causal relationship is not established and does not constitute force majeure, and the delayed performing party shall bear corresponding responsibilities.

In addition, the author noted that the Third Series of Questions and Answers on the Application of Law in Cases Involving the COVID-19 (2022 Edition) issued by the Shanghai Higher People's Court pointed out that the people's courts need to abide by the following four adjudication principles when handling cases involving contract disputes involving the epidemic: first, abide by contracts to promote development; Second, sharing risks and balancing interests; Third, adjust according to law and be fair and impartial; Fourth, focus on coordination and proper resolution. In the above case 2, the judge comprehensively considered the time and extent of the actual impact of the epidemic situation or epidemic prevention and control measures on the performance of the contract, as well as factors such as the parties' predictability of losses, and the degree of fault, and judged the respective responsibilities of both parties according to law.