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The Supreme Peoples Courts Press Conference on the Guiding Opinions on Several Issues Concerning Properly Handling Civil Cases Related to COVID-19 Epidemic in Accordance with the Law (III)

From: Head News Media Agency of Peoples Court    Qiao Wenxin     Updated: 2020-06-16   

On the morning of June 16, the Supreme Peoples Court (the SPC) held a press conference and promulgated the Guiding Opinions of the Supreme Peoples Court on Several Issues Concerning Properly Handling Civil Cases Related to COVID-19 Epidemic in Accordance with the Law (III) (the Opinions (III)). The SPC answered reporters' questions on the relevant content.

1. Reporter: The application of international treaties is an essential issue in the trial of the foreign-related commercial and maritime cases. What are the points that need attention in applying international treaties in cases related to the COVID-19 epidemic?

The SPC: The application of international treaties is an important issue in the private international law. In trials of foreign-related commercial and maritime cases, it is crucial to accurately understand and apply international treaties, as it would directly affect the international credibility of the judgements. As to how to apply international treaties, the following points deserve attention:

When an international treaty is applicable to the case, it should first distinguish whether the issues are applicable to the treaty or not. For the issues not subject to the treaty, it should then determine which law is applicable, namely, determine the governing law, in accordance with the guidelines on conflict rules stipulated in PRC laws.

In the application of the treaty, the interpretation of relevant terms shall also be considered. Pursuant to Article 31 of the Vienna Convention on the Law of Treaty, a treaty should be interpreted in good faith in accordance with the ordinary meanings of terms therein and their context, by reference to the purpose and intent of the treaty.

The enactment of the Opinions (III) was question-oriented. The Opinions (III) raise specific opinions on disputes of international sale of goods contracts, which were most significantly impacted by the epidemic, and on the application of the United Nations Convention on Contracts for the International Sale of Goods (CISG).The questions that may arise in trials in practice are also clarified.

Firstly, one can consult the status of parties to the CISG on the official website of the United Nations Commission on International Trade Law, to ascertain whether a country is a party to the Convention and the rights retained by it.

Secondly, pursuant to Article 4 of the CISG, the validity of the contract or the effect which the contract may have on the ownership of the goods sold is not applicable to the CISG. The determination of the two issues should be based on applicable laws ascertained in accordance with the guidelines on conflict rules stipulated in PRC laws.

Thirdly, Article 79 of the CISG stipulates the impediments to the performance of obligations and the relevant exemption from liabilities. If a party alleges exemption from contract liabilities in whole or in part due to the  epidemic or the control measures, peoples courts shall strictly apply the specific conditions provided in Article 79 in a strict manner. The CISG should be interpreted in good faith in accordance with the ordinary meanings of terms therein and their context, by reference to the purpose and intent of the CISG.

Fourthly, it is noted that the UNCITRAL Digest of Case Law on the United Nations Convention on Contracts for the International Sale of Goods is not part of the CISG. In trials it can be a reference only, not legal authority.

2. Reporter: In some countries or regions, the epidemic has led to the interruption of bank business. Would this have any influence on international trade? What should peoples courts focus on when dealing with relevant cases?

The SPC: Letters of credit and independent guarantees are the most common financial instruments in foreign trade. The epidemic has led to the interruption of bank business in some countries, which would influence a cardinal aspect of international trade and result in disputes. International practices or model clauses related to letters of credit and independent guarantees have relevant provisions on the force majeure. We will take the Uniform Customs and Practice for Documentary Credits (UCP 600) and the Uniform Rules for Demand Guarantees (URDG 758), which are the most commonly used provisions of the International Chamber of Commerce, as examples.

As to the letters of credit, Article 36 of UCP 600 provides on force majeure that:A bank assumes no liability or responsibility for the consequences arising out of the interruption of its business by Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or any other causes beyond its control. A bank will not, upon resumption of its business, honour or negotiate under a credit that expired during such interruption of its business. In the application of this provision, attention should be paid to the following issues:

Firstly, the independence principle and the rule of strict compliance of the letters of credit should be complied with, and it should be accurately distinguished whether the failure of delivery of goods is in bad faith or out of the epidemic. Secondly, when the client alleges that the interruption of bank business is caused by the epidemic, it should first be determined whether it constitutes force majeure provided in Article 36 in accordance with laws. Thirdly, it should be examined whether the parties have special agreements as to the force majeure and their respective obligations. For example, when the parties have contracted to exclude the application of Article 36 of UCP 600, even if the letter of credit expires during the interruption of bank business, the bank shall still undertake the obligation of payment.

As to independent guarantees, Article 26 of URDG 758 stipulates that force majeure means acts of God, riots, civil commotions, insurrections, wars, acts of terrorism or any causes beyond the control of the guarantor or counter-guarantor that interrupt its business as it relates to acts of a kind subject to these rules. In addition, Article 26 also specifies rules for situations where presentation or payment under the independent guarantee or counter gurantee is prevented by force majeure and corresponding extension rules. In the application of Article 26, attentions shall also be paid to issues in the letter of credit disputes.

3. Reporter: The COVID-19 epidemic has a remarkable impact on carriage contracts. If the epidemic outbreaks in the course of transportation and thus the carrier changes the transport route, does the carrier breach the legal obligation? If there is delay in delivery as a consequence, is the carrier exempted from the liabilities?

The SPC: According to our previous researches, the epidemic does have a significant influence on carriage contracts. The enactment of the Opinions (III) is to appropriately balance the parties interests to achieve fairness and justice under this situation. According to Article 291 of the Contract Law, the carrier shall deliver the goods to the agreed place along the agreed or the usual transport route.

However, if danger occurs in the course of transportation, the carrier can transport through the unusual routes or make a detour for the safety of the vehicles, passengers or goods. For example, if in the course of transportation there is a person with suspectedCOVID-19 on the vehicle and needs timely diagnosis and quarantine, the carrier should change the transport route and transfer the patient to the nearest hospital. In this case, as long as the carrier informs the consignor in a timely manner, it shall not be deemed to be in breach of its legal obligation, and the change of route is a reasonable option. The administration of justice not only balances the interests, but also shows the warmth of justice.

In a similar situation, if the epidemic or the control measures result in a delay in loading or unloading of goods, or a failure to deliver goods to the agreed place at the agreed time, it is a delay in delivery as a matter of fact. Nonetheless, as long as the carrier fulfills his obligation to inform the consignor in a timely manner, the carrier could be exempted from liabilities of such delay in delivery.

4. Reporter: It is reported that some vessels are faced with control measures such as berthing restriction and quarantine. How should carriers deal with them?

The SPC: The shipping industry has been hammered by the epidemic. During the drafting of the Opinions (III), we thoroughly reviewed the problems that the carriers of international carriage of goods by sea might encounter. We took into account the rationality of the control measures, and the balance of interests of parties concerned, coordinating the needs of control and prevention of the epidemic as well as the needs of social and economic development. Specifically, the carrier of carriage of goods by sea may run into the following problems during the epidemic: 

Before the voyage, some vessels might not get equipped with the necessary crew and supplies within a reasonable period due to the epidemic or the epidemic control and prevention measures; some vessels might not arrive at the loading ports or the ports of destination; some vessels might not continue to sail or dock normally once coming into harbors affected by the  epidemic; etc. Where the contract cannot be fulfilled due to force majeure or to other reasons which cannot be reasonably blamed on either the carrier or the consignor, pursuant to Article 90 of the Maritime Law, the carrier can terminate the contract without bearing the liability for compensation.

Once the vessel starts the voyage, the carrier should generally deliver the goods to the unloading port agreed in the contract. If the carrier cannot deliver the goods to the originally agreed port of destination because of the epidemic or the epidemic prevention and control measures, it should negotiate with the merchant. If the negotiation fails, unless the contract specifies otherwise, the carrier has the right to unload at the safe port or the place near the port of destination for the sake of interests of the consignor or the consignee, after making appropriate arrangements for the preservation of the goods and informing the people concerned.

When a vessel arrives, without specific requirements of the port administrative authority, the port operators should disinfect the vessel rapidly and unload it in a normal manner. If the port operators restrict the berthing period for quarantine without authorization, the owners or the manager of the vessel can claim compensation from the port operators. Peoples courts shall support such the claim in accordance with laws.

5. Reporter: China is not only a major shipping country, but also a major trading country. What should the merchant of the international transportation contract do if it encounters problems during the  epidemic, including prohibition of import and export of goods prepared, failure to deliver in time owing to the block of carriage by land, and flight cancellation?

The SPC: According to our researches, the carrier might have the following difficulties during the epidemic:

Firstly, the goods might be prohibited from importing or exporting by the countries or areas of the loading ports or the ports of destination; the carrier might fail to deliver the goods to the loading port within a reasonable period because of the block of carriage by land; the carrier might fail to fulfill the contract obligations due to other reasons which cannot be reasonably blamed on it. Under these circumstances, the carrier can terminate the contract of carriage by sea without bearing the liability for compensation, pursuant to Article 90 of the Maritime Law.

Secondly, the proportion of containerized traffic has been increasing. The block of carriage by land may lead to the payment of demurrage as a result of the use of the containers longer than originally contracted. Due to the progressive and superimposing nature of the demurrage charge, after a long period, the accumulated charges often exceed the value of several containers. At this time, the merchant can negotiate with the carrier for a reduction of the demurrage charge. If the negotiation fails, the carrier can apply to the court for a lower charge. Under the context of epidemic, the term of use of the containers exceeding the contracted period is very likely to have valid reasons. It might be unfair to order payment of demurrage in whole as stipulated in the contract, and it contravenes the criteria of predictability of damages under the Contract Law. Peoples courts can reduce the demurrage charge on a case by case basis. Generally, the maximum amount would be the value of a new container in the local market at the material time.

Thirdly, the merchant might often encounter flight cancellation or reschedule. In these cases, if the forwarding agent fails to perform due diligence to timely inform the carrier of the cancellation or reschedule, or is at fault when assisting the carrier with the follow-up matters, peoples courts shall support the claim of the carrier that the forwarding agent is liable in accordance with laws.

6. Reporter: China is a major shipbuilding country. Now the construction of vessels has been generally delayed due to the epidemic, under this circumstance, can the shipping enterprises be exempted from relevant liabilities?

The most direct impact of the epidemic on the shipbuilding contracts is the delay in ship construction as the shipping enterprises cannot resume production in time. However, internationally, the main shipbuilding contracts, such as the Baltic and International Maritime Council standard newbuilding contract (NEWBUILDCON 2007), the Shipbuilders Association of Japan 1974 standard contract (SAJ Form), and the China Shipbuilding Trading Co. Ltd. shipbuilding contract, generally contain stipulations as to permissible delay. According to these standard contracts, delays in delivery of vessels caused by the epidemic or the control measures are permissible delays. Even if the contract has no such stipulations, peoples courts may support the claim of the party to alternate the period of performance of the contract on a case by case basis.

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*The original text is Chinese and has been translated into English for reference only. If there is any inconsistency or ambiguity between the Chinese version and the English version, the Chinese version shall prevail.