Compensation from Chinese suppliers? Doubtful – coronavirus considered a force majeure
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One of the many consequences of the coronavirus epidemic in China is the shutdown of many factories and production stoppages. This is felt strongly by industry all over the world, which sourced components for production from Chinese plants. As the suspension of deliveries from Chinese partners often causes production line stoppages, companies are already making serious losses. It also appears that customers of the Chinese industry are unlikely to be able to count on any compensation in this respect.
The China Council for the Promotion of International Trade informed as early as the first week of February that it issued its first certificate of force majeure related to coronavirus disease (2019-nCoV). It was granted to a car parts manufacturer in Huzhou, Zhejiang Province. The certificate can help the Chinese company to minimise the liability for failure to meet a contract due to the epidemic.
In this particular case, the Chinese company producing steering gear housings for the Peugeot plant in Africa was not able to deliver the products on time. And the consequences of a breach of contract are extremely severe. If the Chinese did not provide legal certification of the reasons for failure to perform the contract in a timely manner, they would not only have to pay a penalty for breach of contract in the amount of 2.4 million yuan. The French company could also claim compensation for the two-week downtime of the production line. And this would entail costs of about 30 million yuan. Losing reputation at such costs is just a nail in the coffin of a business.
Force majeure certificate protects against compensation claims
According to the CCPIT, the force majeure certificate is a document confirming an occurrence thereof. It is issued on request to be used in commercial disputes. Such a document may partially or fully relieve the parties from liability for non-performance, defective performance and delayed performance.
According to Yan Yun, Deputy CEO of CCPIT Commercial Certification Center, force majeure certificates are recognized by governments, customs, chambers of commerce and companies in more than 200 countries and regions around the world. According to media reports, in the first half of February CCPIT issued about 1,600 force majeure certificates for companies across 30 industries. The documents concern contracts with an estimated value of 110 billion yuan. At the same time, the Council adds that some companies have presented the certificate to their clients and have agreed to carry out orders at a later date, without any legal obligations.