On 30 January 2020 the China Council for the Promotion of International Trade (CCPIT) announced that it would offer Force Majeure Certificates (FM Certificates) to local businesses. The intention was to assist them in prospective disputes with foreign counterparties arising as a result of the actions being taken then by the Chinese government which were, at that time, relatively unique. By 20 April 2020 7,004 FM Certificates covering contracts worth a combined RMB690 billion (c. GBP78.5 billion / USD98 billion) had been issued. On 25 March 2020 the Italian Minister of Economic Development issued a measure allowing Italian Chambers of Commerce to issue FM Certificates on the application of an affected party.
The Italian and PRC governments are unlikely to be alone in taking measures directed at limiting the exposures of businesses operating within their jurisdictions to claims or disputes arising from the governmental action taken and restrictions imposed to arrest the spread of COVID-19. However, the effect of FM Certificates is far from clear; although they seem unlikely to hinder, to what extent will they assist a business to establish force majeure (and must a counter-party accept force majeure when an FM Certificate has been issued)?
The answer to those questions will depend on the governing law of the relevant underlying contract, so taking local law advice will be paramount. However, as we explain below the position under the laws of England, China, Hong Kong, Italy and France suggests a relatively uniform approach across common and civil law jurisdictions; FM Certificates will serve as useful evidence for a party seeking to rely on force majeure, but will not necessarily be determinative. A party will still have to meet the usual requirements under the relevant law to invoke force majeure, which will usually include showing that the event relied upon falls within the scope of a force majeure clause, and that the event has affected the ability of the party to perform its obligations.
Please see our global guide to review the position on force majeure in your jurisdiction.
We have published guidance on force majeure generally and in the context of COVID-19 under English law. There is no freestanding concept of force majeure under English law – it is a contractual remedy. If a contract is silent on force majeure, English law will not imply it into the contract.
This is different to some other (typically civil law) legal systems, including France and Italy, where force majeure is a legally defined concept and where courts may declare that a particular event, such as COVID-19, is a force majeure event.
Whilst the English courts have not yet tested the effect of an FM Certificate, given the fundamental principles the Courts will apply when considering a force majeure claim, the position is likely to be that, whilst an FM Certificate is useful evidence of the fact that a force majeure event has taken place, the fact of the certificate itself will not lead the Court to hold that the party invoking the force majeure provision is entitled to relief. That said, if the force majeure clause expressly refers to the issuance of FM Certificates as an event which can be relied on, as may be the case in some contracts entered into by parties from the PRC, the circumstances will be different and the contractual remedy will be available.
In those circumstances, even when an FM Certificate is in play, parties are still advised to analyse the force majeure clause carefully (and may be assisted by the guidance on analysing force majeure clauses. They should also, of course, consider all other available contractual remedies (as explained in an EPC context.
The Hong Kong Courts will adopt a similar position to the English Courts. The focus there will also be the usual test of whether the events on which a party is relying fall within the scope of the force majeure clause, and whether that event has impacted performance of obligations such that those obligations can be excused. Our guidance on force majeure in Hong Kong can be found here.
People’s Republic of China
According to the CCPIT, the FM Certificates it is issuing have been recognised by the governments, customs agencies, trade associations, and enterprises of more than 200 countries and regions. That said, the CCPIT has stated that it does not take the position that the issuance of an FM Certificate is sufficient by itself to exempt liability and claim force majeure.
A CCPIT FM Certificate may be useful to parties who intend to prove the existence of a force majeure event and/or certain government measures, but will not serve as conclusive proof that there is a force majeure event.
As is the position under English law, whether or not a force majeure defence can be established will depend on the language of the underlying contract and the actual impact of any purported force majeure event on the performance of the underlying contract.
Our Italian office has previously commented on the position with respect to FM Certificates in Italy.
An Italian Chamber of Commerce may issue an FM Certificate upon declaration by an applicant it has not been able to perform under a contract due to the contingent measures in Italy and the current state of emergency. When issuing the certificate, the Chamber of Commerce relies solely on the applicant’s declaration in relation to the alleged force majeure event and will not assume any responsibility regarding the truthfulness of the facts and events stated in that declaration.
Therefore, even where an FM Certificate has been issued, a foreign counterparty may challenge the alleged impossibility of fulfilling contractual obligations due to the force majeure event, taking into account the effect that the event has had on performance and availability of alternative routes to fulfil obligations.
As the FM Certificates are based on the declarations made by the applicant only, it is questionable whether an Italian Court would find that an FM Certificate is sufficient proof of a force majeure event excusing contractual performance under Italian law.
Guidance on force majeure and coronavirus in Italy can be found here.
Force majeure in France is governed by the Civil Code, although contractual provisions will prevail as long as they do not amount to abuse. Accordingly, under French law, the terms of the contract remain fundamentally important.
Whilst the French Government has not issued any FM Certificates, it has, in the context of public procurement, already indicated that the COVID-19 pandemic fulfils all the conditions of a force majeure event. This position has also been adopted by the French Court of Appeal in a public law matter.
Whilst the position under public law contracts cannot be determinative of the position with respect to contracts under private law, as with the production of FM Certificates in other jurisdictions, it may be used as evidence that the COVID-19 pandemic constitutes a force majeure event.
Guidance on Force Majeure as it is applied under French law can be found here.
It is likely that parties will continue to rely on FM Certificates when invoking force majeure, and there appears to be some degree of international consensus that, while these certificates will have evidential weight, their issuance will not be determinative of the existence of a force majeure event. What remains most important are the terms of the force majeure clause, the nature of the event which is being relied on and the causal connection between that event and the non-performance of the obligation.
If you have any questions in relation to the operation and effect of Force Majeure certificates please contact James Carter (London), Jamie Curle (London), Sean McGuiness (London) Leo Cheng (Shanghai), Kelvin Chen (Hong Kong), Davide Rossetti (Milan) and Theo Naud (Paris).