Is FM recognized in statute? If yes, what is impact of statutory rules on FM clauses in contracts?
Yes - FM doctrine exists pursuant to article 180 and article 590 of the PRC Civil Code, which came into effect on 1 January 2021 and replaced and superseded the prior article 180 of the PRC
General Rules of the Civil Law and Article 117 and Article 118 of the PRC Contract Law.
Where a contract contains FM provisions, the provisions will apply to the extent that they do not conflict or derogate from the statutory principles.
FM remedies pursuant to contract?
Yes. However, FM clauses only apply to the extent that they do not conflict with the statutory principles.
Formalities to invoke?
Need to establish causation between the FM event and the non-performance of the contract. Requires prompt notification of the counterparty by the invoking party and proof of existence of the FM and its impact.
Any obligation to mitigate?
Both parties suffering from the FM event shall take appropriate preventive measures to mitigate losses on a "best efforts" basis.
What is the outcome of invoking FM?
The party successfully invoking FM is absolved of civil liability for non-performance. A party may request to terminate the contract under article 563 of the PRC Civil Code.
Any other concepts/remedies?
Doctrine of change of situation:
- Article 533 of the PRC Civil Code established the doctrine of change of situation on a statutory level.
- The two regimes are no longer exclusive to each other under the Civil Code and a FM event is remediable either by invoking force majeure or the change of situation, depending on circumstances of the case.
- In general, if performance is not possible, a claim to invoke FM should be made under the FM doctrine; If performance is still possible but "obviously unfair," then a claim to modify/terminate the contract should be made under this regime.
- Unlike the FM regime, a judicial court proceeding must be initiated, potentially requiring multiple levels of review.