China: Force Majeure and loss of the basis for business in China

When does the obligation to perform the contract cease to apply?

The debtor may be released from the obligation to perform the contract in full (1) if a contract cannot be performed in full due to force majeure and if the purpose of the contract cannot be achieved by delayed performance or possible partial performance, or (2) if, after the conclusion of a contract, a material change in the conditions underlying the contract occurs which could not have been foreseen by the parties at the time of the conclusion of the contract and which does not constitute a typical business risk of the party concerned and if the continued performance of the contract is manifestly inequitable for one of the parties.

When may a withdrawal or an adjustment of the contractual relationship be considered?

Under Chinese law, the concept of withdrawal from the contract does not exist. Chinese law only knows the concepts of contract termination and contract avoidance. Termination of the contract by the debtor is possible under the points mentioned in Clause 1.

The parties may adapt the contract (1) if part of the contractual obligations cannot be fulfilled due to force majeure, (2) if the fulfilment of the contract is unreasonable due to changed circumstances, or (3) if the circumstances expressly agreed in the contract under which the contract may be adapted occur.

How can future contractual relationships be optimally structured?

In order to avoid legal uncertainties, it is recommended that appropriate clauses concerning the prerequisites and legal consequences of the occurrence of force majeure, as well as further special contract adjustment clauses (e.g. self-delivery clause, liability exclusions, price adjustment clause and contract termination clause) are included in the contracts.

Autor: Marcel Brinkmann