9. What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?
In accordance with business practice, the following force majeure events will give rise to relief: natural disasters and social emergencies that are inevitable and insurmountable in the performance of the contract, such as earthquakes, tsunamis, plagues, riots, martial law, riots, wars, etc.
Under Chinese laws, force majeure events must be unforeseeable. In principle, ‘unforeseeable' is for common people (ie, objective criteria). However, if there is evidence to prove that the parties to the contract are able to foresee the event, then the subjective criteria will be adopted exceptionally. In this situation, “unforeseeable” is for the parties to the contract.
Under Chinese laws, force majeure events shall be unforeseeable, unavoidable and insurmountable. This is an objective criterion, ie, it only requires a common person not able to foresee, avoid and overcome the event. Therefore, the risk allocation clause usually does not affect the qualification of force majeure events.
Force majeure events do not require permanent effects.
Impossibility in performing or a degree of difficulty is a necessary condition for exclusion of liability caused by force majeure, but not a necessary condition for a force majeure event itself.
Relief is available where only some obligations are affected.
As per article 590 of the Civil Code, if the contract cannot be performed due to force majeure, the contractor shall be partially or completely entitled to exclusion of liability due to the influence of force majeure. For example, the contractor can claim extensions of time to be excluded from liability for breach of the 'time' agreed in the contract. In practice, when (i) the permanent work is damaged, (ii) the equipment, materials and components are lost or damaged and (iii) the contractor has to pay the wages and acceleration costs during the period, the contractor can claim part of the costs. As per article 563 of the Civil Code, when the purpose of the contract cannot be realised due to force majeure events, parties to the contract may request to terminate the contract.
Relief cannot be applied automatically, and the parties affected by force majeure shall immediately notify the other party and bring claims within the agreed time limit.
Questions concerning whether these rules can be excluded by agreement is a subject of dispute, but it is generally believed that these rules cannot be excluded.
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10. When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?
The contractor is entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform when a ‘change of situation’ occurs under Chinese laws. As per article 533 of the Civil Code, where a major change that is unforeseeable and is not a business risk occurs after the formation of a contract, if the continuous performance of the contract is obviously unfair to the other party, the party is entitled to relief.
As to the relief, the contractor may renegotiate with the other party; and if an agreement cannot be reached within a reasonable period of time, the parties may request a people’s court or an arbitration institution to amend or rescind the contract.
There are controversies on this issue, but it is generally believed that relief for such rules ('change of situation') cannot be excluded through agreement.
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