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What is the impact of the coronavirus on contracts with customers and suppliers in China?

In this post I have collected questions and answers on the legal aspects concerning some critical issues that may have to face, until the conclusion of this exceptional event, those who are importing from China or those who sell in China.

 

INDEX

Import from China

  • Delays in production and shipping.
  • Can your suppliers in China invoke the force majeure clause?
  • Can you invoke the force majeure clause against your customers in the West?


Export to China

  • Payment for goods already sent or in navigation
  • Orders already packed or in production.

 

Obviously the comments made in this post have a general scope and are not applicable in cases where special contractual conditions have been agreed.

 

The virus identified in China, called coronavirus, given the size reached to date is certainly to be counted among the force majeure events .

What does force majeure mean?
In both Italian and Chinese legal perspectives, if an event of force majeure occurs for the entire period of its duration, the unavailable part to fulfill, will not be held responsible for its inability to perform its obligations.
It remains possible to verify whether these obligations must in any case be fulfilled as soon as possible when the force majeure event will be considered terminated.

For ease of reading, below you will find two sections, one dedicated to those who import from China and the other for those who export to China.

 

If importing from China:

Delays in production and shipping.

The production and logistics chains will certainly suffer delays due to both the forced closure of companies and the limitations in the circulation of means of transport. Many factories, starting from the Wuhan red zone and all over China, Hong Kong and Taiwan, will be slow to open even after the official holidays for the Chinese New Year have ended. The governments of the various Chinese municipalities are setting day by day the dates when people can return to work.

 

Can your suppliers in China invoke the force majeure clause?

The delay of the suppliers of goods or services in China is to be considered strictly connected to the event of force majeure and, therefore, no fault can be charged to the supplier for the delays that will occur in the coming weeks.
Not it would be legitimate, under the aforementioned conditions, to take action against the late Chinese supplier, any penalties, claims for damages and / or payment of any indemnity.
Your supplier in China must, however, cooperate and notify you of the evolution of events and its effects on its ability to execute contractual agreements.
Of course, your obligation to reduce – where possible – the negative impact of delays on your company must also be taken into account in order to reduce the negative impact of the damage suffered and not to aggravate it further.

 

Can you invoke the force majeure clause against your customers in the West?

The fact that your Chinese supplier is late due to force majeure does not automatically make this excuse applicable to chains in dealing with your customers in the West.

 

If you export to China:

Payment for goods already sent or in navigation.

The coronavirus event on payments is irrelevant since goods already shipped or in navigation must be paid for and are not subject to the contractual effect of the unexpected event. It will obviously be necessary to put to account for physiological delays in banking operations in China given the forced closure of workplaces.

 

Orders already packed or in production.

The negative decline suffered by the Chinese buyer in its market should not be relevant for the purposes of acceptance and payment of orders in progress or for those already executed and ready for shipment to China.
Unless for particular conditions agreed or for the type of product produced, the contract can be terminated by the Chinese party by invoking the event of force majeure.
As an exporter, except in the case of Ex Works delivery, you may find yourself facing delays in logistics chain to China. In this case, the delays that will occur in transport, if related to the coronavirus event, will normally not have to be charged to your company.

 

NOTES

  • The coronavirus is certainly to be counted among the events of force majeure as it is unexpected.
  • Not all the delays that are accumulating in the production and logistics chain can be attributed to the Chinese counterparts.
  • It is important for companies that import or export with China to monitor relations with suppliers and customers in order to mitigate the damage that may occur.
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What is the impact of the coronavirus on contracts with customers and suppliers in China?

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Why become a member of the chamber?

Contacts

Facilitations in contacts between member companies and foreign countries, with the receipt by email for members only of offers and unique advantages.

Support

Assistance in financing practices for internationalization or in the search for commercial, industrial and professional partners abroad.

Events

Realization of events (conferences, seminars, etc.) aimed at cooperation and commercial exchange.

Conventions

Agreements and benefits for members from affiliated companies.

What is the impact of the coronavirus on contracts with customers and suppliers in China?

Share on facebook
Share on twitter
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Read also ...

Why become a member of the chamber?

Contacts

Facilitations in contacts between member companies and foreign countries, with the receipt by email for members only of offers and unique advantages.

Support

Assistance in financing practices for internationalization or in the search for commercial, industrial and professional partners abroad.

Events

Realization of events (conferences, seminars, etc.) aimed at cooperation and commercial exchange.

Conventions

Agreements and benefits for members from affiliated companies.