Force Majeure and Related Doctrines of Excuse in Contract Law of the People's Republic of China


Force Majeure and Related Doctrines of
Excuse in Contract Law of the

People's Republic of China

LESTER Ross*

I. INTRODUCTION

Since the death of long-time Communist Party Chairman Mao
Zedong in 1976, the leaders of the People's Republic of China
("PRC") have abandoned the economic policies which had isolated the
PRC from the global economy for nearly three decades and have
expanded the PRC's economic interaction with other countries. The
Third Plenum of the Eleventh Congress of the Communist Party in
1978 brought to power reform-minded officials who had a greater
appreciation of market practices.' Deng Xiaoping, who became the
paramount leader at that time, led a movement within the highest
reaches of the Communist Party (the "Party") that, while not forsaking
centralized planning, reoriented both the Party and the PRC in favor

* Associate, Jones, Day, Reavis & Pogue, New York, NY; Ph.D., University of Michigan,
1980; J.D., Harvard, 1990. The writer is author of ENVIRONMENTAL POLICY IN CHINA (1988),
coauthor (with Mitchell A. Silk) of ENViRONMENTAL LAW AND POLICY IN THE PEOPLE'S
REPUBLIC OF CHNA (1987), and author of numerous articles and book chapters on Chinese law
and politics. The views set forth herein are the personal views of the author and do not
necessarily reflect those of the law firm with which he is associated.

The author expresses his appreciation to the Committee on Scholarly Communication with
the People's Republic of China, a unit of the National Academy of Sciences, for organizing and
funding the fieldwork component of this research, and to the Government of Zouping County,
Shandong, particularly its Foreign Affairs Office, the Shandong Provincial Academy of Social
Sciences and the Shandong International Culture Exchange Center for facilitating the fieldwork.
This article benefitted from readings of earlier versions by Harold J. Berman, Jon Eichelberger,
Claudia Ross, Charles Goldsmith, Mitchell A. Silk and Frank Upham.

1. See Byrd, The Role and Impact of Markets, in CHINA'S INDUSTRIAL REFORM 237 (G.
Tidrick & Chen Jiyuan eds. 1987); see generally, Nee, A Theory of Market Transition: From
Redistribution to Markets in State Socialism, 54 AMER. Soc. REv. 663 (1989). Even many rural
cadres, who used to be a major source of resistance to reform, have been persuaded of some
benefits of the reforms. Nee & Su, Institutional Change and Economic Growth in China: The
View from the Villages, 49 J. ASIAN STUDIES 3, 7-8 (1990). For a general theoretical
comparison of the role in China of market-exchange methods of policy implementation as
compared to bureaucratic administration, including central planning, and mobilizing campaigns,
see L. Ross, ENVmoRmENTAL POLICY IN CHINA 8-23 (1988).



FORCE MJEURE AND EXCUSE IN CHINA

of a significantly more decentralized, market-oriented, incentive-based
economy much more open to international trade.2 As part of a larger
plan of expanding the PRC's private sector to meet market demands,
these reformers sought to increase the PRC's involvement in interna-
tional trade and to encourage foreign investment in China. Foreign
businesses, excited by this new "open door" policy, increased their
trade With and investment in the PRC.3

The tragic events of the summer of 1989, however, made foreign
businesses acutely aware that the "open door" could close. In reaction
to widespread popular discontent with corruption, inflation and
repression, more conservative officials engineered a crackdown that
resulted in hundreds of deaths and the removal from office of
then-Party Chairman Zhao Ziyang and other leading reform-minded
officials.4 These events broke the momentum of the economic reforms
and created the potential for a drastic policy reversal away from

2. See generally H. HARDING, CHINA'S SECOND REVOLUTION, REFORM AFITER MAO
(1987); The People's Republic of China After 40 Years (Special Issue), 119 CHINA Q. 419
(1989).

3. The State Statistical Bureau's official foreign trade data show that the value of foreign
trade increased from US$14.80 billion in 1977 to US$111.68 billion in 1989 in current-year
dollars. 1990 ZHONGGUO ToNCI NIANJIAN (Statistical Yearbook of China) 641 [hereinafter
TONJI NIANJIAN]. As a proportion of national income, the value of foreign trade rose from
10.3 percent of national income in 1977 to 31.7 percent of national income in 19S9,
notwithstanding a modest proportional decline in the late 1980s. Calculated from i& at 34, 641.
The most current book on foreign trade and investment in the PRC is DOING BUSINESS IN
CHINA (W. Streng & A. Wilcox eds. binder).

4. These events were widely reported in the press and broadcast media. Many book-length
accounts have appeared, including BEIJING SPRING, 1989 (ML Oksenberg, L Sullivan & M.
Lambert eds. 1990); CHINA'S SEARCH FOR DEMOCRACY: THE STUDENT AND MASS MOViM-NT
OF 1989 (S. Ogden, K. Hartford, L. Sullivan & D. Zweig eds. 1991); THE CHINESE PEOPLE'S
MOVEMEN'I PERSPECTIVES ON SPRING 1989 (r. Saich ed. 1990); CRIFS FOR De.1OCRACY:
WRITING AND SPEECHES FROM THE 1989 CHINESE DEMOCRACY MovEIIEr (a' Minzhu ed.
1990); M. FATHERS & A. HIGGINS, THE RAPE OF PEKING (1989); L FEIGON, CHINA RISING:
THE MEANING OF TIANANMEN (1990); G. HICKS, THE BROKEN MIRROR: CHINA AFTER
TIANAnMN (1990); INTERNATIONAL LEAGUE FOR HUmiN RIGHTS, MASSACRE IN BEIJING: THE
EVENTS OF 3 - 4 JUNE, 1989 AND THEIR AFTERMATH (1989); LIU BINYAN, RUAN 1MING & XU
GANG, TELL THE WORLD: WHAT HAPPENED IN CHINA AND WHY (H. Epstein cd. 1990);
MASSACRE IN BEIJING: CHTNA'S STRUGGLE FOR DEMOCRACY (D. Monison ed. 1989) M MG PAO
NEws, A CHRONICLE OF THE CHINESE DeM1OCRATIC UPRISING (Zi Jm & Qin Zhou trans. 1939);
THE PRO-DEMOCRACY PROTESTS IN CHINA: REPORTS FROM THE PROVICES (I. Unger ed. 1991);
H. SALISBURY, TIANANwEN DIARY. THIRTEEN DAYS IN JUNE (1989); S. SIMim & B. Nixon,
TLAAN mN SQUARE (1989); J. SPENCE, TIE SEARCH FOR MODERN CHINA (1990); TANANMN:
CHINA'S STRUGGLE FOR DEMiOCRACY: ITS PRELUDE, DEVELOPMENT, AFTERMATH AND IMPACt
(W. Yang & M. Wagner eds. 1990); D. TURNLEY, P. TUNtNL-Y & MK LwU, BEIJING SFRNG
(1989); YI MU, CRISIS AT TIANANMEN: THE DEMOCRACY MOVEF-MENr IN CHINA (1989); Pye,
Tiananmen and Chinese Political Culture: The Escalation of Confrontation from Moralizing to
Revenge, 30 ASIAN SURVEY 331 (1990). For a broad review, see Mrsky, The Empire Strikes
Back, N.Y. Rev. of Books, Feb. 1, 1990, at 21.

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JOURNAL OF CHINESE LAW

foreign trade and market economics in favor of insularity and tighter
state control of the economy.

While the long-term effects of the events of June 1989 are unclear,
in the short-term they have reduced the expected profitability of many
international trade and investment contracts involving China. Foreign
lawyers and businessmen, alarmed by this reduction in expected
profitability, have become increasingly concerned with the prospect that
the foreign party or its Chinese counterpart will be* unable to perform
its contractual obligations. Meanwhile, although the reforms fostered
expansion of the domestic economy in general, trade and commerce
have also been disrupted by fluctuations in the money supply, credit
availability and other factors. These problems, especially those
involving international trade and investment, in turn, have focused
attention on force majeure and other related doctrines of excuse.
However, little scholarly analysis of these doctrines in Chinese law has
appeared to date. Therefore, it is an opportune time to analyze the
present scope of the law of force majeure in the PRC in the context
of both Chinese statutes and practice.

II. THE CONCEPT OF FORCE MAJEURE IN INTERNATIONAL AND
ANGLO-AMERICAN LAW

Force majeure, connoting "superior or irresistible force' 7 that
excuses nonperformance or delayed performance but not non-conform-
ance, is a term incorporated directly from the French into international
and Anglo-American contract law. In its narrow sense, force majeure,
here more properly identified as vis major, is limited to natural

5. See, e.g., Delfs, Power to the Party, FAR E. ECON. REv., Dec. 7, 1989, at 23; Hotel
JVs in China: Recovery from June 4 Still Far Off, Bus. CHINA, Aug. 28, 1989; Keck, Covering
All the Bases, CHINA Bus. REv., Sept.-Oct. 1989, at 20; Leung, Foreigners Find China Ventures
Difficult to Quit, Wall St. J., Mar. 12, 1991, at A15, col. 3.

6. The following articles in English discuss force majeure and related doctrines of excuse
in the PRC: Chang & Olofsson, Worst-Case Scenarios, CHINA BUS. REV., Sept.-Oct. 1989, at
16; Gelatt & Bates, Force Majeure, Termination, Dispute Resolution: Contract Issues With A
New Relevance, E. ASIAN ExEc. REP., July 15, 1989, at 9. See also Leclerq, Force Majeure
in Chinese Commercial Law, 7 J. ENERGY & NATURAL REsouRcEs L. 238 (1989); H. ZHINO,
CHINA'S CIVIL AND COMMERCLAL LAW 67-69 (1988); Zhao, A Comparative Study of the
Uniform Commercial Code and the Foreign Economic Contract Law of the People's Republic
of China, 6 INT'L TAX & Bus. L. 26, 39-42 (1988). For discussion of Chinese sources, see
infra, note 15.

7. BLACK'S LAW DICTIONARY 645 (6th ed. 1990) ("Force majeure ... In the law of
insurance, superior or irresistible force. Such clause is common in construction contracts to
protect the parties in the event that a part of the contract cannot be performed due to causes
which are outside the control of the parties and could not be avoided by exercise of due care.").

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FORCE MAJEURE AND EXCUSE IN CHINA

calamities of unavoidable force arising from causes wholly independent
of human intervention.'

The concept of force majeure would have very limited application
in contract law were its scope so narrowly restricted. In fact, however,
the reach of force majeure has undergone significant expansion in
many countries as the result of consensual bargaining on contractual
terms by the parties, and also has developed extra-contractually through
the evolution of judicial doctrine and statutory language.

For example, force majeure is now generally understood to
encompass events such as war or civil strife, which stem from human
causes rather than natural forces.9 In addition, international practice
has expanded the scope of force majeure to include causes not wholly
external to the parties. In fact, some courts have gone so far as to
allow state-owned enterprises to invoke force majeure defenses even
when their breach was occasioned by a change in policy by the
government which doubles as their owner. In other words, courts have
become more willing to distinguish between the enterprise itself and
the government of which it is a part. 0

In addition to expanding the scope of the doctrine itself, courts
have construed force majeure clauses in contracts to encompass
analogous events not specifically enumerated. Courts have been able
to do this by liberally applying the rule of ejusdem generis, which
provides that general terms that supplement particular enumerated items

8. Id. at 1572 ('vis major... A greater or superior force; an irresistible force. A loss
that results immediately from a natural cause without the intervention of man, and could not
have been prevented by the exercise of prudence, diligence, and care. (citation omitted) A
natural and inevitable necessity, and one arising wholly beyond the control of human agencies,
and which occurs independently of human action or neglect. In the civil law, this term is
sometimes used as synonymous with 'vis divina,' or the act of God.").

9. See 6 CORBIN ON CONTRACTS § 1324 (1962).
10. The leading case in this regard was decided in Great Britain. It involved a Polish

state-ovmed enterprise whose inability to fulfill a sugar export contract because of a
governmental suspension of export licenses arising from changed domestic market conditions
was excused as an unforeseeable external force majeure event. C. Czamikow, Ltd. v. Centrala
Handlu Zagranicznego Rolimpex, [1979] A.C. 351, cited in Williams & Inkester, England, in
COMPARATIVE REPORT ON FORCE ,mAJEURE IN WEsIERN EUROPE 31, 37-38 (M. Kurkela ed.
1982). In another case, an arbitration tribunal actually excused a breach by a government
purchaser because a change in the governing entity had fundamentally altered the conditions in
effect when the contract was executed. Questech, Inc. v. Ministry of National Defense of the
Islamic Republic of Iran, AWD 191-59-1, Iran-United States Claims Tribunal (Sept. 20, 1985),
80 AM. I. INT'L L. 362 (1986). Thus, while a state-owned enterprise faces a higher burden of
proof when invoking a force majeure defense with regard to the external nature of the event,
the enterprise may succeed, especially when "the enterprise has no particular connection with
the authorities." INTERNATIONAL CHAMBER OF COMM.ERCE, FORCE MAJEURE AND HARDSIUP
comment 9, at 14-15 (1985).

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are interpreted to refer only to the same kind or class of things as the
specifically enumerated items.'" Through this liberal application,
courts have substantial latitude to expand the scope of contractual force
majeure clauses on the ground that the parties intended that analogous
events qualify as force majeure events. 2 This is entirely appropriate
since one of the fundamental tenets of a force majeure clause is the
notion of unforeseeability. Since the event or type of event must be
unforeseeable, it would be unduly harsh for a court to adopt a per se
rule that the parties intended by omission to exclude non-enumerated
events from the scope of force majeure. 3 However, the party against
which the excuse is asserted should be permitted to present evidence
that commercial custom or usage negated the meaning asserted by the
party in breach, even though such limitation on the force majeure
clause was not expressly included in the contract. t4

11. BLACK'S LAW DICTIONARY, supra note 7, at 517.
12. E. FARNSWORTH, CONTRACTS 676-77 (1982). See, e.g., Lighthouses Arbitration Case,

Award of July 24/27, 1956, 12 U.N.R.I.A.A. 161, reprinted in Contre-Reclamation No. 10, at
241, cited in G. DELAUME, TRANSNATIONAL CONTRACTS: APPLICABLE LAW AND SETTLEMENT
OF DiSpurEs (A Study in Conflict Avoidance) § 5.11, at 41 (1991). Greece sought compensation
for damages to its lighthouses sustained from bombardment because the operative term defined
force majeure events as "tremblements des terre, etc." The tribunal determined that "etc."
included man-made events such as war as well as natural calamities, although Greece ultimately
lost on other grounds. Id.

13. This interpretation of open-ended force majeure clauses is also supported by linguistic
analysis. As the philosopher H.P. Grice has argued, unless the boundaries of a claim are
specifically asserted and other "conversational implicatures" of a claim are specifically denied,
the listener (including an opposing party or tribunal) reasonably may conclude that any or all
of the implicatures were intended by the person making the assertion. Grice, Logic and
Conversation, in 3 SYNTAX AND SEMANTICS: SPEECH ACTS 41, 58 (P. Cole & J. Morgan eds.
1975). See also INTERNATIONAL CHAMBER OF COMMERCE, supra note 10, comment 7, at 13
("[mit must be made clear that the enumeration [of events] is in no way meant to be
exhaustive."); E. FARNSWORTH, supra note 12. Note also the use of the word "deng" ("and so
forth") in Zhonghua Renmin Gongheguo Zhongwai Hezi Jingying Qiye Fa (The Law of the
People's Republic of China on Chinese-Foreign Equity Joint Ventures) (adopted July 1, 1979,
promulgated July 8, 1979), art. 13 [hereinafter JV Law], 1990 ZHONGHUA RENMIN GONGHEOUO
GuOWUYUAN GONGBAO (Gazette of the State Council of the People's Republic of China) 261,
262 (serial) hereinafter GuOWuYuAN GONGBAO]. See infra notes 77, 78 and accompanying text.

14. But see Jordan Investments, Ltd. v. All-Union Foreign Trade Corp. (Isr. v. U.S.S.R.),
U.S.S.R. Foreign Trade Arbitration Comm'n, 27 I.L.R. 631 (1958); For a criticism of this
decision, see Berman, Force Majeure and the Denial of an Export License Under Soviet Law:
A Comment on Jordan Investments, Ltd. v. Souiznefteksport, 73 HARv. L. REv. 1128 (1960).

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FORCE MAJEURE AND EXCUSE IN CHINA

M. THE CONCEPT OF FORCE MAjEURE IN THE PRC

A. Historical Background

Until recently, the place of force majeure in PRC contract law did
not attract much concern among foreign parties, Chinese parties,
Chinese law-makers and jurists, or legal academics.' s The lack of
attention toward force majeure is attributable to several factors. First,
China traditionally did not place great weight on the role of law,
dismissing it as an inevitably imperfect and even harmful effort by
mortal beings to govern society. Confucianism in particular placed
much greater emphasis on the emulation of virtuous rulers rather than
on law as the key to a well-ordered society. 6 As a result, force
majeure was just one among many legal doctrines found in other
cultures, whether civil law or common law in origin, that never

15. See supra note 6 and accompanying text. The principal exception is Yang Zhcnshan,
Shilun Wo Guo Minfa Queli "Qingshi Biangeng Yuanze" de Biyaoxing (On the Necessity of
Establishing 'The Principle of Changed Circumstances" in China's Civil Law), 1990 ZHO.NGGUO
FAxUE No. 5, at 53-60. The topic is also treated in more abbreviated form in Fng Datong,
Shewai Jingii Hetong Fa de Jiben Yuanze he Zhuyao Neirong (Fundamental Principles and
Major Contents of the Foreign Economic Contract Law), 1985 ZHONGUO FAX-UE No. 3, at 49;
Huang Xin, Lan Jingii Hetong Weiyue Zeren de Jiben Yuanze (On the Basic Principles of
Liability for the Breach of Economic Contracts), 1984 ZHONGGUO FAXUE No. 2, at 42-43;
Wang Chengbin, Lianheguo "Xiaoshou Hetong Gongyue" yu Wo Guo "Shewai Jingil Hetong
Fa" de Bijiao (Shang) (Comparisons between the United Nations Convention on Contracts for
the International Sale of Goods and China's Foreign Economic Contract Law (pt. 1)), 1939
ZHoNGGuo FAXUE No. 3, at 106; Zhang Yuejiao, Dingli Shewai Jingii Hetong de Jige Wenli
(Some Problems Concerning the Conclusion of Foreign Economic Contracts), 1985 ZHONGGUO
FAXUE No. 2, at 57; Zhuang Huichen, Lan Guoji Shangshi Hetong 2hong de Cuozhe Weni (On
the Issue of Frustration in International Commercial Contracts), 1985 FAXTE YANHU No. 4, at
89-96; Zou Yi & Xu Jinlin, Dui Jingji Hetong Jiage Jiufen Chuli zhi Tantao (An Inquiry into
the Handling of Economic Contract Price Disputes), 1989 FAXUE ZAZHI No. 4, at 24. In
addition, the relevant provisions of Chinese statutes, discussed infra, reveal a notable lack of
precision and inattention to the implications of force majeure doctrine. Moreover, no circulars
or other documents on the subject appeared in ZHONGHUA RENMIN GONGHEGUO ZUIJAO
RENhNM FAYUAN GONGBAO (Gazette of the Supreme People's Court of the People's Republic
of China) [hereinafter ZUIGAO FAYUAN GONGBAO] from its inception in 1985 through 1990. For
a discussion of the role of the Supreme Court Gazette in the PRC's legal system, see Liu,
"Legal Precedents" with Chinese Characteristics: Published Cases in the Gazette of the
Supreme People's Court, 5 J. CHINESE L. 145 (1991); on the power of the Supreme People's
Court to issue opinions on legal issues outside of decisions on particular cases, see T. HSrA &
C. JOHNSON, LAW MAKING IN THE PEOPLE'S REPUBLIC OF CHINA: TERMS, PROCEDURES,
HmRARCHY, AND INTERPRETATION 22 (1986) (hereinafter LAW MAKING N THE PRC]; Liu,
Judicial Review in China: A Comparative Perspective, 14 REV. Soc. L 241, 249 (1988).

16. Creel, Legal Institutions and Procedures During the Chou Dynasy, in ESSAYS ON
CHINA'S LEGAL TRADITION 26, 39 (J. Cohen, R. Edwards & F. Chen eds. 1980).

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emerged to any significant extent in China.17

Second, private commercial practices, the source of lex mercatoria
and, indirectly, of a substantial body of statutory law in the West,' 8

did not achieve a comparable level of development in China. At the
time that the Renaissance had already emerged in the commercial
centers of Lombardy and then spread throughout central and Western
Europe,' 9 China during the Ming Dynasty (1368 - 1644) took a
decisive and perverse turn inward. The intellectual product of this
reorientation was a Neo-Confucian metaphysical discourse" which led
China, in the Qing Dynasty (1644 - 1911), to reject commercial
intercourse with the West because of the prevailing belief in the
imperial government that China's tightly controlled economy had
nothing to gain from such trade.21 Thus, force majeure, like other
commercial law doctrines, did not develop in part because China
lacked the impetus to expand international trade relations which would
have necessitated the development of commercial law doctrines. Even
domestic law was impoverished, however, because the state restricted
interprovincial trade in order to ensure the satisfaction of its own
requirements for grain and other commodities, while preventing the rise
of autonomous centers of influence.22

Third, when the Communist Party took power in 1949 and
established the PRC, it rejected several decades of market-oriented
development that had begun in the final years of the Qing Dynasty and
had accelerated after the founding of the Republic of China in 1911.
Such development had already been dealt a devastating blow by the

17. On the history of jurisprudence in China, see especially D. BODDE & C. MORRIS,
LAW IN IMPERIAL CHINA: EXEMPLIFIED BY 190 CH'ING DYNASTY CASES (1967); T. CHU, LAW
AND SOCIETY IN TRADITIONAL CHINA (1961); Creel, supra note 16; S. VAN DER SPRENKEL,
LEGAL INSTITUTIONS IN MANCHU CHINA (1962); Gernet, Introduction to THE SCOPE OF STATE
POWER IN CHINA at xxvii, xxxii (S. Sehram ed. 1985); Vandermeersch, An Enquiry into the
Chinese Conception of the Law, in THE SCOPE OF STATE POWER IN CHINA, supra at 3, 24.

18. On lex mercatoria or "law of the merchant," see Berman, The Law of International
Commercial Transactions (Lex Mercatoria), 2 EMORY J. INT'L DISPUTE RESOLUTION 235 (1988).

19. See H. BERMAN, LAW AND REVOLUTION: THE FORMATION OF THE WESTERN LEOAL
TRADITION (1983).

20. On the rise of Neo-Confucianism, see generally T. M=rZGER, ESCAPE FROM PREDICA-
MENT: NEo-CoNFUCIANSM AND CHINA'S EVOLVING POLITICAL CULTURE (1977).

21. Letter from the Emperor of China to King George the Third (1795) (E. Parker trans.),
in 40 NINETEENTH CENTURY 48 (1896), reprinted in CHNA: SELECTED READINGS 110 (H.
Kublin ed. 1968).

22. On the domestic economy, see generally M. ELVIN, THE PATTERN OF THE CHINESE
PAST (1973); D. PERKNS, AGRICULTURAL DEVELOPMENT IN CINA, 1368-1968 (1969). For a
recent critique of scholarship on central-regional marketing structures, see generally D. LITTLE,
UNDERSTANDING PEASANT CHINA (1989).

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Japanese invasion of 1937, post-war inflation and rampant corrup-
tion? The Communist Party certainly promoted rapid economic
development, but did so in the Stalinist mode of a state-planned,
resource-intensive strategy that repressed the private economy and
market transactions. Not only did the PRC's planned economy have
little need for commercial law doctrines like force majeure, but none
would have been forthcoming because of the Communist Party's
hostility toward the rule of law.24 The codification of laws, particu-
larly criminal law, 5 but also civil law,6 began to take shape in the
1950s. However, this process was brought to an abrupt end during the
Anti-Rightist Campaign (1957 - 1958) that followed the short-lived
Hundred Flowers period (1957).

Not until Mao's death and the ascension to power of Deng
Xiaoping did commercial practices and commercial legal doctrine, such
as force majeure, begin to develop in the PRC. Although Deng and
most of his associates appear to have had little faith in law except

23. See generally A. FEUERWERKER, THE CHINESE ECONOMY, CA. 1870-1911 (1969); A.
FEuEmamKER, EcONOm.IC TRENDS IN THE REPutUC OF CHINA, 1912-1949 (1977); S. PEP,
CIVIL WAR IN CHINA: THE POLITICAL STRUGGLE, 1945-1949 (1978); T. RAWSKI, ECON0MIC
GRowrH IN PREWAR CHINA (1989).

24. Upon taking power, the Communist Party promptly abolished the Six Codes that had
been the foundation of the legal system under the Republic of China. LIu FA QUAN SHU (The
Complete Six Codes) (Tao Baichuan ed. 1986). For the abolition of the Six Codes, see (h
Common Program of the Chinese People's Political Consultative Conference) art. 17 (1949), in
1 ZHONGYANG RENNIIN ZHENGFU FALING HUtMIAN (Legal Compendia of the Central People's
Government) 17, 21 (reprint 1982); S. LENG, JUSTICE IN COIMUNIST CHINA 27-28 (1967).

25. See L COHEN, THE CRIMINAL PROCESS IN THE PEOPLE'S REPUBLC OF CHINA,
1949-1963, AN INTRODUCnON (1969); S. LENG & H. CHIU, CRIMNAL JUSnCE IN POST-MAO
CHINA: ANALYSIS AND DOCUENTS (1985).

26. For documentation on the civil law drafting process in the 1950s, see CoMENDIU
OF MATERIALS ON THE CIVI LAW OF THE PEOPLE'S REPuBuc OF CHINA (1954); RE RNCE
MAERIALS ON THE CIVIL LAW OF THE PEOPLE'S REPUBLIC OF CHINA (1956-1957).

27. On the politics of this period, see generally R. hACFARQUHAR., CONTRADICrIONS
AMONG THE PEOPLE 1956-1957 (1974). The failure to develop a legal system was one aspect
of the Communist Party's monopoly of power that created the conditions for a series of
destructive campaigns and power struggles during the final two decades of Mao Zedong's life,
most notably the Great Leap Forward (1959-61) and the Cultural Revolution (1966-76, active
phase 1966-69), which created tremendous economic disarray as well as tragic political and
social repression of the populace. For analysis of cycles and campaigns, see especially Dittmer,
Patterns of Elite Strife and Succession in Chinese Politics, 123 CHINA Q. 405 (1990); Eckstein,
Economic Fluctuations in Communist China's Domestic Development, in 1 CHINA IN CRISIS 691
(P. Ho & T. Tsou eds. 1968); Skinner & W'mckler, Compliance Succession in Rural Communist
China: A Cyclical Theory, in COMPLEX ORGANIZATIONS: A SOCIOLOGICAL READER 410 (A.
Etzioni 2d ed. 1969); cf. V. SHUt, THE REACH OF THE STATHI SKETCHES OF THE CHINESE
BODY PoLrnc (1988); Nathan, Policy Oscillations in the People's Republic of China: A
Critique, 68 CHINA Q. 720 (1976). For case studies, see generally R. SUMEMR, SCIENCE
POLICY AND SOCIEAL CHANGE IN CHINA (1980); L. ROSS, supra note 1, at 176-87.

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perhaps as a sophisticated instrument of the "people's democratic
dictatorship,"' Deng for one came to recognize the positive contribu-
tions that law could render in behalf of social stability and property
rights-both prerequisites for the decentralized economic development
that Deng sought to encourage. Thus, shortly after his return to power,
Deng urged rapid restoration and augmentation of the legal system to
prevent the return of arbitrary personal rule and the instability which
such rule would bring.29 In the decade after Deng Xiaoping took
power, dozens of statutes were enacted,30 the number of legal
practitioners increased,3 the use of contracts mushroomed,32 and the

28. The term "people's democratic dictatorship" is a non sequitur employed as a substitute
for "dictatorship of the proletariat" because China's tiny proletariat played only a limited role
during the revolution. See Mao Tse-tung, On the People's Democratic Dictatorship (June 30,
1949), in 4 SELECrED WORKs OF MAO TSE-TUNG 411 (1961).

29. Deng stated that "[t]o ensure people's democracy, we must strengthen our legal
system. Democracy has to be institutionalized and written into law, so as to make sure that
institutions and laws do not change whenever the leadership changes, or whenever the leaders
change their views or shift the focus of their attention. The trouble now is that our legal system
is incomplete, with many laws yet to be enacted. Very often, what leaders say is taken as the
law and anyone who disagrees is called a law-breaker. That kind of law changes whenever a
leader's views change. So we must concentrate on enacting criminal and civil codes, procedural
laws and other necessary laws concerning factories, people's communes, forests, grasslands and
environmental protection, as well as labor laws and a law on investment by foreigners. These
laws should be discussed and adopted through democratic procedures. Meanwhile, the
procuratorial and judicial organs should be strengthened. All this will ensure that there are laws
to go by, that they are observed and strictly enforced, and that violators are brought to book.
The relations between one enterprise and another, between enterprises and the state, between
enterprises and individuals, and so on should also be defined by law, and many of the
contradictions between them should be resolved by law." Deng Xiaoping, Emancipate the Mind,
Seek Truth from Facts, and Unite as One in Looking to the Future (Dec. 13, 1978), in
SELECrED WORKS OF DENG XIAOPING, 1975-1982, at 151, 157-58 (1984).

30. Chinese statutes and regulations have not been assembled in codified series comparable
to the United States Code and the Code of Federal Regulations. Many partial and overlapping
compendia must be consulted to conduct a full search. The best sources are ZHONGHUA RENMIN
GONGHEGUO FALD HUBIAN (Legal Compendia of the People's Republic of China) (1979-1984,
then annual) and GuOwuYuAN GONGBAO. Annual summaries are published in ZHONGGUO FALO
NIANnAN (Law Yearbook of China) (1987 - present) [hereinafter FAL) NIANJIAN]. On possible
progress toward more prompt and comprehensive publication of Chinese statutes and regulations,
see Kristof, What's the Law in China? It's No Secret (Finally), N.Y. Times, Nov. 20, 1988, at
A21, col. 1. At a minimum, there now are regulations for the more uniform editing and
publication of regulations, although unpublished (neibu) regulations will continue to be issued.
See generally Fagui Huibian Bianji Chuban Guanli Guiding (State Council Management
Regulations for the Compilation, Editing and Publication of Regulations) (effective July 27,
1990), 1990 GUOWUYUAN GONGBAO 579. For English-language translations, see CHINA L. &
PRACTICE (serial, 1987-present), CHINA LAWS FOR FOREIGN BUsINESS (binder), and
COMMERCIAL, BUSINESS AND TRADE LAWS: PEOPLE'S REPUBLIC OF CHINA (0. Nee ed. binder).

31. At the end of 1989, there were 43,715 lawyers in China, of whom 23,606 were
employed full-time as lawyers. 1990 TONGJI NIANJIAN, supra note 3, at 812. Many current
lawyers are not graduates of law schools, but the proportion of graduates is rising following the

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FORCE MAJEURE AND EXCUSE IN CHINA

number of arbitrations and lawsuits also grew substantially.33

The prognosis for future legal development remains far less certain,
however, because the events of the summer of 1989 removed from
office several of the leading officials most supportive of genuine rule
by law rather than rule by man, and enabled the new, more conserva-
tive leadership to redefine the rule of law in a more arbitrary,
authoritarian and repressive mannern' This raises the basic question
of the extent to which the PRC's leaders, including those who publicly
advocate a greater role for rule of law, are genuinely Willing to allow
a diminution of their own power and that of the Communist Party.
Genuine rule of law could ultimately result in outcomes that clash with
their own deeply-held commitment to a monopoly of power by the
Communist Party and state control of the economy. It remains to be
seen to what extent the Chinese leadership's support for law is purely

establishment of 38 law schools and departments of law in colleges and universities as well as
another 82 institutions of learning at the secondary and tertiary levels. 1989 PALO NANW4AN,
supra note 30, at 1101, 1107. In 1989, 109,609 clients retained lawyers on annual retainers, and
lawyers handled hundreds of thousands of matters for these and other clients, including 14,594
matters affecting foreign interests. 1990 TONGJI NLNJIAN, supra note 3, at 812.

32. Written contracts played a minimal role in the PRC for many years because economic
allocation was governed mostly by the state plan. The role of the plan has greatly diminished
since the late 1970s. See generally W. BYRD, THE MA tEmT lECHANISM AND ECONOMIC
REFoRis IN CHINESE INDuSTRY (1991). Contracts have assumed a much greater role in the
more decentralized system that now governs. By the late 19SOs the number of written economic
contracts exceeded 700 million per year, creating great pressure for further standardization of
contract language. See Guowuyuan Bangongting Zhuanfa Guojia Gongshang Xingzheng Guanli
Ju Guanyu Zai Quanguo Zhubu Tuixing Jmgji Hetong Shifan Wenben Zhidu Qingshi de
Tongzhi (Administrative Office of the State Council Notice Disseminating the Request of the
State Administration of Industry and Commerce to Publicize Model Economic Contract
Documents) (May 26, 1990), 1990 GUOWUYUAN GONGBAO 267, 268.

33. In 1988, the country's arbitration tribunals resolved 47,025 economic contract disputes,
an increase of 67 percent from 1987, valued at 2.1 billion RMB (US$1 = 3.71 RMB at the
time). 1989 FALO NIANIIAN, supra note 30, at 31. See also Zhong Caichu, Quanguo Zhngcai
Jiguan wei Qiye Paiyou Jienan (Arbitration Organs Around the Country Are Relieving Anxiety
and Settling Difficulties), FAZHI RIBAO, Mar. 14, 1988, at 1. In 1988, the country's courts
handled 313,306 criminal cases, 1,455,130 civil cases and 513,615 economic cases, increases
of 7.25, 21.6 and 40.4 percent, respectively, from 1987. Statistics calculated from 1989 FALO
NIANJIAN, supra note 30, at 1081-82, and from Zheng Tianxiang (Chief Justice of The Supreme
People's Court), Zuigao Renmin Fayuan Gongzuo Baogco (Work Report of The Supreme
People's Court), 1988 ZUIGAo FAYUAN GONGBAO No. 2, at 3 (1988), reprinted in 1989 FALO
NIANJIAN, supra note 30, at 750.

34. For a notorious example of how the judicial system was bent in the service of the
state, Le., the judiciary's approval of government actions in the Tiananmen Incident and
subsequent persecution of dissidents, see generally Supreme [People's] Court Issues Circular
on Speedy Trials, trans. in Foreign Broadcast Information Service-Daily Report, China, June
21, 1989, at 15 [hereinafter FBIS-China] (expedited trials ordered for serious criminal
offenders and counter-revolutionaries); Dicks, The Chinese Legal System: Reforms in the
Balance, 119 CHINA Q. 540, 573-74 (1989).

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JOURNAL OF CHINESE LAW

instrumental and hence very limited.35 Furthermore, in the immediate
aftermath of the June 1989 events, uncertainty over the PRC's
commitment to greater reliance on the rule of law clouded the
prospects for trade and investment. Although foreign investment has
once again increased,36 the uncertainty remains.

B. The Chinese Legal Definition of Force Majeure

1. Choice of Terminology

The concept of force majeure in the PRC closely follows the
French or continental choice of language. As noted at the outset of this
paper, 7 force majeure connotes a superior or irresistible force. The
Chinese terminology adopts this choice of words. Thus, the Chinese
phrase "bu ke kang ii" literally means, in order of the characters,
"not-possible-resist-force" or, more felicitously, "irresistible force."38

This indicates that Chinese doctrine is narrowly drawn to focus only
on external contingencies that affect performance, and will not excuse
nonperformance arising from the occurrence of events preventing
achievement of the purpose or goal intended by the nonperforming
party at the time of the agreement.3 9

Force majeure provisions have been incorporated into all of the
PRC's statutes governing contract law. However, the language
employed has varied both in degree of specificity and in content. This
article will examine the force majeure provisions in each of China's
contract laws. Unfortunately, because these statutory provisions are

35. The subject of the rule of law in China is the subject of an as yet untitled collection
of essays under the editorship of Karen Turner, William P. Alford, Mary Buck and James V.
Feinerman. See also LAW MAKING IN THE PRC, supra note 15, at 25-29.

36. McGregor, Success Stories in China Stay Untold As U.S. Firms Strive for Low
Profiles, Wall St. J., Nov. 7, 1991, at All, col. 1.

37. BLACK'S LAW DICTIONARY, supra note 7 and accompanying text.
38. For dictionary definitions, see P. BILANCIA, DICTIONARY OF CHINESE LAW AND

GOVERNMENT: CHINESE-ENGLISH 506 (1981); CHINESE-ENGLISH INTERNATIONAL TRADE

DICrIONARY 50 (Xie Tao & Sun Jie eds. 1987); FAXUE CIDIAN (A Dictionary of Jurisprudence)
86 (1988); JINGJI FA CIDIAN (A Dictionary of Economic Law) 40 (1987); XIANDAI SHIYONG
MINFA CIDIAN (A Modem Practical Civil Law Dictionary) 24 (Jiang Ping & Wu Changshen
eds. 1988).

39. On frustration, see RESTATEMENT (SECOND) OF CONTRACTS § 265 (1981); E.
FARNSWORTH, supra note 12, at 705; see also discussion of impracticability and frustration,
infra pp. 89-95. Cf Zhao, supra note 6, at 41, stating that the Foreign Economic Contract Law
of the People's Republic of China (adopted Mar. 21, 1985), trans. in J. COHEN, CONTRACT
LAWS OF THE PEOPLE'S REPUBLIC OF CHINA 165 (1988) [hereinafter FECL], may embrace the
concept of frustration, but failing to cite supporting authority.

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FORCE MAJEURE AND EXCUSE IN CHINA

very general, they provide little guidance as to their practical operation.
A modest amount of clarification can be found in the few Chinese law
journal articles discussing force majeure.4° Perhaps the most helpful
information about force majeure in China comes from observing and
analyzing actual cases in which force majeure has been invoked. A
later section of this paper will discuss a few such cases.4' Neverthe-
less, the statutory provisions are the best starting point from which to
commence an analysis of force majeure in China.

2. The General Principles of the Civil Law

In the PRC, "basic laws" refer to major codes and organic laws
that provide the basis and parameters for more specific laws and
regulations, but for the most part do not themselves provide operational
definitions for key terms, or the detail required of specific laws and
policies for enforcement and adjudication.42 In the realm of contractu-
al obligations, the applicable basic law is The General Principles of the
Civil Law of the People's Republic of China43 (the "General
Principles").

The applicable provisions of the General Principles establish
liability for breach of contract, but also excuse nonperformance that is
due to force majeure.

Article 106 Citizens and legal persons that breach a contract or
that do not perform other responsibilities shall bear civil
liability thereof....

Article 107 Unless otherwise stipulated by the law, no civil
liability shall be borne for the inability to perform a contract
or for harm caused to others due to force majeure....

40. See sources cited supra note 6.
41. See discussion infra pp. 95-102.
42. For a description of the various types of laws and regulations in the PRC, see LAV

MAKING IN THE PRC, supra note 15.
43. Zhonghua Renmin Gongheguo Minfa Tongze (The General Principles of the Ciil Law

of the People's Republic of China) (adopted Apr. 12, 1986), in 1986 ZHONGHUA RENMN
GONGHEGUO FALD HUEBiAN, supra note 30, at 26 (hereinafter General Principles), trans. in J.
COHEN, supra note 39, at 29, 43. See also Zuigao Renmin Fayuan Yinfa "Guanyu Guanche
Zhixing 'Zhonghua Renmin Gongheguo viafa Tongze' Ruogan Wenti de Yijian (Shixing)" de
Tongzbi (Supreme People's Court Circular on Opinions (Draft) on Some Problems Affecting the
Actual Implementation of The General Principles of the Civil Law of the People's Republic of
China), 1988 ZU1GAO FAYUAN GONGBAO No. 2, at 16 (hereinafter Supreme Court Circular].

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JOURNAL OF CHINESE LAW

Article 153 The term "force majeure" as referred to in this law
means objective circumstances that are unforeseeable, unavoidable
and insurmountable.'

The General Principles thus create an objective rather than a
subjective test for the presentation of a force majeure defense. The test
is three-pronged: unforeseeability, unavoidability and insurmountability,
all of which are described as "bu neng", i.e., "inability" conditions. 5

In the absence of any authoritative guidance by the Supreme People's
Court on interpretation of these provisions of the statute, the General
Principles do not specify the burden of proof borne by a party
invoking a force majeure defense or address the dimensions of
unforeseeability, including whether government acts or other man-made
events, as well as the consequences of natural forces, qualify as force
majeure events. 6 Similarly, the General Principles do not address the
scope of conditions defining unavoidability, such as whether govern-
ment acts would be sufficiently external so as to be defined as
unavoidable. Moreover, the General Principles do not specify the
standard by which the term "insurmountability" is defined. While
insurmountability implies impossibility, the General Principles do not
indicate whether the term's scope is limited to physical impossibility
or whether it also embraces economic impracticability. While these
problems might be of small concern if the issue was satisfactorily
addressed by more specific statutes, China's contract laws in fact
provide only limited additional guidance on the conditions defining
force majeure.

44. General Principles, supra note 43.
45. Other jurisdictions also apply an objective test. See, e.g., United States v. Brooks-

Callaway Co., 318 U.S. 120, 123-24 (1943) (only "unforeseeable" events outside the control and
without the fault of the party are eligible for force majeure status); Nissho-Iwai Co. v.
Occidental Crude Sales, Inc., 729 F.2d 1530, 1540 (5th Cir. 1984) (California law imposes a
"reasonable control limitation" on each specified event in which nonperformance is excused
subject to two conditions: "good faith in not causing the excusing event and diligence in taking
reasonable steps to ensure performance."), appeal after remand, 848 F.2d 613 (5th Cir. 1988).

46. See Feng Datong, supra note 15, at 49; Yang Zhenshan, supra note 15 at 58.

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FORCE MAJEURE AND EXCUSE IN CHINA

3. The Economic Contract Law

a. Substantive Law

Domestic contracts are specifically governed by The Economic
Contract Law of the People's Republic of China47 (the "ECL"). This
statute provides only modest additional guidance on the meaning of
force majeure in Chinese law, but substantially more information on
the procedural requirements for invoking a force majeure defense.

Article 27 It shall be permissible to modify or rescind an
economic contract if any one of the following situations occurs:

(1) If both parties agree through consultation, and if
such modification or rescission would not dam-
age the interests of the State or affect the imple-
mentation of the State plan;

(2) If the state plan on the basis of which the economic
contract was concluded is amended or canceled;

(3) If one party closes down, stops production or changes its
line of production and truly has no means
of performing the economic contract;

(4) If force majeure or some other cause that a party,
although not negligent, cannot prevent makes it impos-
sible to perform the economic contract; or

(5) If the breach of contract by one party makes performance
of the economic contract unnecessary.

When one party requests modification or rescission of an
economic contract, it shall promptly notify the other party. If
one party suffers losses due to modification or rescission of an
economic contract, the party that is responsible, except when
it may be excused from liability according to the law, shall be
liable to pay compensation.

If one party is merged or divided, the party or parties
resulting from the change shall assume or severally assume the
obligation to perform the contract and shall enjoy its or their
due rights under the contract.

47. The Economic Contract Law of the People's Republic of China (adopted Dc,. 13,
1981), ar. 27(4), trans. in J. COHEN, supra note 39, at 49 (1988) (hereinafter ECL].

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Article 32 If, due to the fault of one party, an economic
contract cannot be performed or cannot be fully performed, the
party at fault shall be liable for breach of contract; if both
parties are at fault, in accordance with the actual conditions,
each party shall be commensurately liable for the breach of
contract that is its responsibility ...

Article 33 If, due to the fault of higher-level leading
authorities or the specialized department in charge, an eco-
nomic contract cannot be performed or cannot be fully
performed, the higher-level leading authorities or the specialized
department in charge shall bear liability for breach of contract.
The breaching party shall, in accordance with provisions, first
pay the other party breach of contract damages or
compensatory damages, and then the higher-level leading
authorities or the specialized department in charge that should
be liable shall be responsible for dealing with the matter.

Article 34 If a party cannot perform an economic contract
due to force majeure, it shall promptly notify the other party
of the reason why it cannot perform or why it needs an
extension of the time for performance or for part performance
of the economic contract.

After it has obtained a certificate from the relevant
authorities in charge, it shall be permitted to extend the time
for performance or part performance or not to perform, and it
may, in accordance with the circumstances, be partly or
completely excused from liability for breach of contract.48

There are several notable elements in these sections of the ECL
regarding excuse for nonperformance. First, Article 27 recognizes the
merit of modifying or rescinding a contract if the basic assumptions in
place at the time the contract was executed no longer apply. There is,
however, no obligation on the parties to modify or rescind the contract.
Rather, the right of a party to modify or rescind a contract under
Article 27(1) is permitted ("yunxii") subject to the agreement of the
other party. If the other party does not agree to modify or rescind the

48. Id. arts. 27, 32-34.

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FORCE MAJEURE AND EXCUSE IN CHINA

contract in response to changed conditions, then the courts must
enforce an otherwise valid original contract.49

However, the issue of whether to enforce the original contract
versus modification or rescission is not always solely a matter of
choice for the other party. Were this so, there would be no apparent
reason for distinguishing between Article 27(1), which alone provides
for voluntary modification or rescission, and the later subsections of
Article 27 which allow judicial modification or rescission without the
consent of the party or parties. In fact, Article 27(2), (3) and (4)
permit modification or rescission without the consent of the victimized
party. While these subsections apply primarily to external factors, as
shown below, they do not altogether exclude internal or subjective
causes of breach.

Second and more importantly, a party may gain contract modifica-
tion or rescission under Article 27(2) if the state plan is amended.
Presumably, large and influential state agencies and enterprises are
more likely to be able to seek changes in the state plan beneficial to
their interests than are weaker entities. Consequently, an influential
party may be able to get its contracts modified or rescinded pursuant
to Article 27(2). Alternatively, modification or rescission may arise
when state policy is changed in response to widespread problems
affecting many contracts.

Articles 27(2) and 33 recognize that nonperformance may result not
from the fault of either of the parties, but rather from a change in the
state plan or a change imposed by the supervising agency. These
provisions signify recognition of the strong, often decisive role played
by bureaucratic controls or commands in the Chinese economy, a
factor which declined in importance after Mao Zedong's death, but
which has increased in importance since late 1988, and especially,
since the summer of 1989.50 Article 33, while absolving the party in

49. Yang Zhenshan, supra note 15, at 54.
50. Examples of tighter bureaucratic controls are a reduction in the number of entaprises

authorized to conduct trade directly with foreign companies, reestablishment of exclusive control
by the ,Ministry of Foreign Economic Relations and Trade over 12 categories of goods imported
through its central trading companies (grain, sugar, steel, chemical fertilizer, plastic sheeting for
agricultural use, crude and refined oil, timber, polyester fiber, tobacco, cotton, and chemical
pesticides), higher import quality standards, and tighter requirements for import licenses.
Recentralizing Trade, CHNA Bus. REv., Sept.-Oct. 1989, at 4. Some 3 million small private and
collective entities were shut down.

Many other restrictions have been imposed on domestic business entities, especially in the
form of more stringent business licensing requirements and stricter controls on access to bank
credit.

For a brief discussion of Article 33 of the ECL, see Leung, Legal Concepts Under Chinese

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JOURNAL OF CHINESE LAW

breach of any liability for nonperformance arising from certain acts by
government, also serves to protect the interests of the victim of the
breach by mandating compensation by the party in breach, with the
agency in charge subsequently reimbursing the party in breach.
Because Article 27(2) only applies to certain categories of policy
changes or administrative interventions, it is not directly comparable
to a pure excuse provision like force majeure. It is, nevertheless, of
great interest because it signifies legislative recognition of the
supervening force of changes in the state plan or government policy.
However, the statute does not state and no authority has indicated how
specific or direct the change in state plan or policy must be in order
to excuse performance by a party to a contract, or the circumstances
under which liability rests on the supervising state agency rather than
the party in breach.

Note, moreover, that only Article 33 provides for damages to the
injured party arising from an involuntary breach or external cause.
Breaches arising merely from amendments to the state plan do not
create liability for damages. Thus, an injured party is eligible for
damages only if the breach is attributable to the actions of a particular
department of government that exceeded its executive or supervisory
discretion with regard to the enterprise or other entity that is in breach.
In such instances, the party in breach appears to bear the burden of
proving fault by the government agency, which indicates that the
supervisory agency action in question must be ultra vires. The party
in breach will, of course, be liable for damages under Article 32 if the
breach arises from its own fault.

It also should be noted that inefficiency in state enterprises is a
chronic problem in the PRC. If Chinese courts were to apply Article
33 in a flexible manner that expanded the grounds for culpability by
state authorities or supervising departments, even to the extent of
excusing enterprise inefficiency, it is possible that incentives for
enterprise management to increase efficiency and reduce losses would
diminish. 5' Empirical work is needed to determine both the impor-
tance of compensation by supervisory agencies and the degree to which
enterprises are able to cloak their inefficiency as compensable losses.

Third, Article 27(3) excuses nonperformance on grounds of
impossibility arising from a party's closure, suspension of operations
or change in product line. Article 27(3) apparently is intended to

Law, INT'L FIN. L. REV., Jan. 1986, at 16, 17; Huang Xin, supra note 15.
51. Huang, Web of Interests and Patterns of Behavior of Chinese Local Economic

Bureaucracies and Enterprises During Reforms, 123 CHINA Q. 431, 449-50 (1990).

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FORCE MAJEURE AND EXCUSE IN CHINA

address changes in production capacity arising from a state-ordered
closure, change of product line or withdrawal of business license for
reasons such as restructuring of industry, land condemnation or
pollution control. It is not intended to excuse a voluntary suspension
of production.52 As noted at the end of Article 27, the obligation to
perform is not excused by the merger or division of a party. Rather,
the obligation is assumed by the surviving entity. However, the
provision does not exclude decisions by government officials respon-
sible for enterprise management, as well as general policy, or decisions
shaped by the enterprise through the exercise of informal influence
("guanxi") to close down, suspend production or alter the enterprise's
product line. Nor does the provision indicate which party bears the
burden of proof regarding impossibility. Therefore, Article 27(2)
appears to create latitude for subjective impossibility or impracticability
as well as for objective or external impossibility.

Fourth, Article 27, the modification and rescission article, indicates
that the victim of a modification or rescission shall be entitled to
compensation "except when [the party that is responsible] may be
excused from liability according to the law." Because Article 27(4)
includes a treatment of force majeure, this language suggests that a
victim of modification or rescission attributable to force majeure may
be entitled to compensation under some circumstances. This is curious
because a successful force majeure defense absolves the party in
breach of liability for losses attributable to the event, as provided in
Article 3453 The juxtaposition of compensation language With force
majeure in Article 27 appears to be a product of imprecise drafting in
which the force majeure subsection, Article 27(4), is lumped together
with other subsections under which a party may be entitled to
compensation because reform or rescission arises from the fault of the
party in breach or from certain acts of the state. The problem could
have been avoided by the use of a contrast conjunction such as "keshi'
or "danshP' ("but" or "however") to distinguish the propositions. In
any event, the "excused from liability according to the law" provision
of Article 27 appears to serve as a safe harbor for parties invoking
force majeure even if the precipitating event results in a modification

52. Cf. Suburban Newspapers of Greater St. Louis, Inc. v. Kroger Co., 886 F.2d 1060,
1061 (8th Cir. 19S9) (force majeure does not excuse nonperformance of a long-term contract
by a party which deliberately reduces operations by closing its stores).

53. See, eg., Archibald, France, in COMiPARATIVE REPRT ON FORCE M&AJEU E IN
WESTERN EUROPE, supra note 10, at 56, 57.

54. Cf. Leclerq, supra note 6, at 238-39, where Article 27(3) of the ECL is analyzed
without reference to Article 34.

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JOURNAL OF CHINESE LAW

or rescission of the contract.
Fifth, Articles 27(4) and 34, the force majeure provisions, are

notably silent on the definition of force majeure. Indeed, Article 27(4)
includes the intriguing conjunct "force majeure or or some other cause
that a party, although not negligent, cannot prevent" without providing
any guidance whatsoever on which grounds, other than force majeure,
would excuse nonperformance due to impossibility. It also should be
noted that domestic regulations, issued in conformance with the ECL,
contain force majeure provisions. These provisions, however, do not
provide any additional substantive detail on the meaning of force
majeure.5s

b. Procedures for Invoking Force Majeure

Although Articles 27(4) and 34, the force majeure provisions,
supply no additional substance to Chinese force majeure law, Article
34 sets forth the procedural requirements for invoking force majeure.
Specifically, the party in breach is required not only to notify its
counterpart to the contract, but also to secure a certificate from the
relevant state agency attesting to the occurrence of and presumably
also to the extent of a force majeure event.

All commentators to date contend that the certification of force
majeure events is performed by the local notariats56 which are
distributed throughout the country at and above the county level.57

These observers have noted that the role of the notariats presents major
procedural questions.5" The first concern is that if the notariat does
not certify a force majeure event, then it would appear that a party
may be unable to exercise the force majeure provision, at least not
without bringing suit against the notariat for failure to act under the
new Administrative Procedure Law of the People's Republic of China

55. See, e.g., Regulations on Contracts for the Purchase and Sale of Agricultural
By-products (1984), art. 16, trans. in J. COHEN, supra note 39, at 61, 65; Regulations on
Contracts for the Purchase and Sale of Industrial and Mineral Products (1984), art. 38, trans.
in J. COHEN, supra note 39, at 69, 81.

56. Chang & Olofsson, supra note 6, at 16; Gelatt & Bates, supra note 6, at 13.
57. In 1989, China had 2,914 notariats staffed by 9,408 notaries and 2,515 assistant

notaries. 1990 TONGJI NIANJIAN, supra note 3, at 812. On regulations governing the notariats,
see Zhonghua Renmin Gongheguo Gongzang Zanxing Tiaoli (Interim Regulations of the
People's Republic of China on Notarization) (promulgated Apr. 13, 1982), in 2 ZHONGGUO
DutWAI JINGJI FAGUI Hurt AN (Compendia of China's Foreign Economic Legislation) 119
(1986). See also Chen, The Chinese Notariat: An Overlooked Cornerstone of the Legal System
of the People's Republic of China, 35 INT'L & COMP. L. Q. 63 (1986).

58. Chang & Olofsson, supra note 6, at 16; Gelatt & Bates, supra note 6, at 12-13.

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FORCE MAJEURE AND EXCUSE IN CHINA

(1989),19 the effectiveness of which remains to be demonstrated.
The second concern is that to the extent to which a local notariat

enjoys substantial discretion which can be exercised to the detriment
of the foreign, non-local or weaker party in the certification of force
majeure events, a notariat might, for example, be reluctant to certify
a force majeure event because the party seeking certification is
unpopular with the local authorities for unrelated reasons, such as tax
disputes or conflicts over the supply of raw materials. Alternatively, a
local notariat may refrain from certifying a widespread event as force
majeure lest such certification lead to the political embarrassment of
local officials. Conversely, a local notariat may relax its conditions for
certifying an event if the party is popular or if the local government
perceives advantages in terms of excusing breaches by local enterprises
in general. In any event, the requirement for certification appears to
vest the notariat with a power for which it has no demonstrated
expertise, and simultaneously to limit a party's access to judicial or
arbitral relief.

However, contrary to prevailing belief, the notariats actually do not
perform any significant role in the certification of force majeure
events, 60 a role for which they would indeed be singularly ill-
equipped.61 Rather, another procedure is followed. First, the party in

59. Zhonghua Renmin Gongheguo Xingzheng Susong Fa (The Administrative Procedure
Law of the People's Republic of China) (promulgated Apr. 4, 1989), 1989 GUOWIUYUAN
GONGBAO 297. This statute is analyzed in Finder, Like Throwing An Egg Against A Stone?
Administrative Litigation in the People's Republic of China, 3 J. CHRN4E L. 1 (1989). See also
Gu Angran, Xingzheng Susong Fa de Zhiding dui Wo Guo Shehuizhuyi Minzhu Zhengzhi he
Fazhi You Zhongda Yiyi (The Enactment of the Administrative Procedure Law of the People's
Republic of China Has Enormous Significance for the Socialist Democracy and Legal System
of China), 1989 ZHONGGUO FAXUE No. 3, at 3; He Shan, Xingzheng Jiguan Qinquan Peichang
Zeren Xingzhi Chuyi (Preliminary Comments on the Nature of Liability for Compensation for
Torts of Administrative Organs), 1989 ZHONGGUO FAxuE No. 3, at 18; Zhang Shangzhuo,
Shilun Wo Guo de Xingzheng Susong Zhidu he Xingzheng Susong Fa (A Preliminary Discussion
on China's Administrative System and Administrative Procedure Law), 1989 ZHONGGUO FAXUB
No. 1, at 3; Zhang Shuyi, "Xingzheng Susong Fa (Caoan)" Ruogan Zhenglun Wenti Zai Sikao
(Reflections on Some Controversial Issues Concerning the "Administrative Procedure Law
(Draft)"), 1989 FAXUE No. 3, at 8; Potter, Administrative Litigation Law May Offer Some
Protection Against Abuse of Power, E. ASIAN ExEc. REP., Nov. 15, 1990, at 9.

60. See commentators cited supra, note 6. Commentators may have been misled by the
term certification which ordinarily is considered a notarial function. See Ihe Law of Civil
Procedure of the People's Republic of China (promulgated OcL 1, 1982), art. 59, trans. in Joint
Pub. Research Serv., China Report: Political, Sociological and Military Affairs, Mar. 22, 1982,
No. 282, at 32.

61. Interview with Ji Ganghe, Chairman of the Research Office, Chen Zhong, Deputy
Chief of the Basic Level Service Section, Li Baoyu, Chief of the Foreign Section of the
Notariat, Jinan (Shandong) Municipal Justice Bureau, and Wang Guangren, Law Advisor to the
iman Municipal Government and Director of the Tman Foreign Lawyers' Office, in Jinan

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breach must promptly notify the other party to the contract so that the
latter may elect to suspend its own performance or participate in the
investigation of the event. Failure to notify the other party deprives it
of any opportunity to determine the existence and magnitude of a force
majeure event, which may negate the right of the first party to invoke
a force majeure defense.

Second, certification is performed, if at all, by the relevant agency
at the applicable level of government, as indicated by the phrase,
"relevant authorities in charge," in Article 34.62 Thus, alleged traffic
accidents and fires will be investigated and, if confirmed, certified by
the public security bureau, just as earthquakes are the responsibility of
the seismology bureau and agricultural calamities are within the domain
of the agriculture bureau. Complex events transcending administrative
boundaries will be jointly investigated by the relevant agencies and
then may be certified by the local government rather than by the
agencies themselves. All parties, including the party not in breach,
have the right to observe the investigation. Furthermore, procedures
have been substantially tightened regarding the reporting of disasters
to the central government.63

Third, although formal certification is required by Article 34, a
court may not insist on certification, although it may be expressly
required by contract. Thus, the existence of an agricultural calamity
resulting in widespread crop losses ordinarily will be a matter of
common knowledge and may not require certification by the court.
Moreover, a party may plead force majeure even without the benefit
of certification. However, its burden of proof will be correspondingly
higher. Thus, farmers merely pleading "poor harvest" as their excuse
for nonpayment of their sharecropping or land use fees specified in
production guarantee contracts appear to have little chance for success
in the absence of certification because such farmers are unable to

(Shandong) (Dec. 30, 1989) [hereinafter Interview with i Ganghe]; Interview with Sun Situn,
Chief Notary, Nie Zhenluan, Deputy Chief Notary, and Yuan Donglin, Section Chief, Zibo
(Shandong) Municipal Notariat, in Zibo (Shandong) (Jan. 18, 1990); Interview with Zhao Jirang,
Chair of the Zouping County (Shandong) Legal Advisor's Office, in Zouping Co. (Shandong)
(Jan. 9, 1990). There is no reason to believe that procedures in Shandong, the venue for the
field research reported here, differ from those found elsewhere in the country.

62. ECL, supra note 47, art. 34.
63. Guowuyuan Bangongting Guanyu Tebie Zhongda Shigu Baogao Gongzuo Youguan

Wenti de Tongzhi (State Council Office Circular on Some Questions Concerning the Work of
Reporting Disasters) (adopted June 5, 1990), 1990 GUOWUYUAN GONGBAO 505; Tebie Zhongda
Shigu Diaocha Chengxu Zanxing Guiding (Provisional Regulations on Investigation Procedures
for Disasters) (adopted Mar. 29, 1989), 1989 GUOWUYUAN GONGBAO 325. There is no mention
of notariats in either document.

[5:58



FORCE MAJEURE AND EXCUSE IN CHINA

prove that the shortfall was due to external causes.O Conversely,
farmers' chances of obtaining an excuse from liability for breach are
much better if they can cite a widespread agricultural calamity as the
cause for their poor harvest.65

4. The Foreign Economic Contract Law

Fortunately, The Foreign Economic Contract Law of the People's
Republic of China (the "Foreign Economic Contract Law" or
"FECL"), which governs contracts between Chinese parties and foreign
parties, provides substantially more guidance on the meaning of force
majeure.

Article 24 When a party cannot perform all or part of its
contractual obligations because of an event of force majeure,
it shall be fully or partially relieved from liability.

When a party cannot perform in accordance with the
contractually agreed time periods because of an event of force
majeure, it shall be relieved of liability for delayed perfor-
mance during the period of continued influence of the effects
of the event.

An event of force majeure means an event that the parties
could not foresee at the time of conclusion of the contract and
the occurrence and effects of which cannot be avoided and
cannot be overcome.

The scope of events of force majeure may be agreed to in
the contract.

Article 25 When one party cannot perform all or part of
its contractual obligations because of an event of force majeure,
it shall promptly inform the other party in order to diminish
the losses that might be caused to the other party, and it must
within a reasonable period provide evidence issued by the

64. Interview with Zhao J'rang, supra note 61.
65. Zuigao Reamin Fayuan Guanyu Shenli Nongeun Chengbao Hetong Jiufen Anjian

Ruogan Wend de Yijian (Supreme People's Court Opinion on Some Problems in the Trial of
Cases Involving Disputes over Rural Production Responsibility Contracts) (Apr. 14, 1986), pare.
5, reprinted in 1987 FALID NLANMAN, supra note 30, at 591.

66. FECL, supra note 39. See also Zuigao Renmin Fayuan Guanyu Shiyong "Shevwa
Ymgji Hetong Fa" Ruogan Wend de Jieda (Supreme People's Court Circular on Soma Questions
Involving Application of "The Foreign Economic Contract Law") 1987 ZUIGO FAYUAN
GONGBAO No. 4, at 3 [hereinafter Circular on Some Questions].

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relevant agency....

Article 29 In any one of the following circumstances, a
party shall have the right to inform the other party of the
rescission of the contract:

(1) The other party has breached the contract, to the
extent that such breach has seriously affected the eco-
nomic benefits expected when concluding the contract;

(2) The other party has not performed the contract
during the period agreed to in the contract, and has still
not performed within a reasonable time period allowed
for delayed performance;

(3) An event of force majeure has occurred, with the
result that none of the contractual obligations can be per-
formed; or

(4) The conditions agreed on in the contract for
rescission of the contract have arisen.67

Thus, the FECL defines an event of force majeure in Article 24 as
an event that is (1) unforeseeable as of the time when the contract was
executed; and (2) the effects of which are (a) unavoidable and (b)
insurmountable by the party or parties to the contract. Furthermore, the
parties may stipulate the scope of force majeure events in the contract
to suit their particular requirements.

Nevertheless, the statute still contains several areas of ambiguity.
Most notably, the statute provides that the parties may stipulate the
scope of events qualifying as force majeure, yet at the same time
defines a force majeure event as unforeseeable and hence incapable of
stipulation at the time when the contract was executed. This may
enable a party to invoke force majeure even for an event that is not
stipulated in the force majeure clause of its contract on the grounds
that the actual event is analogous to an event that was stipulated in the
contract; that the parties intended to stipulate the event but mistakenly
failed to do so; or, more radically, that the parties would have
stipulated the event but were incapable of doing so because of its
inherent unforeseeability. The other party can, of course, also present
extrinsic evidence in this instance to prove that the events were

67. FECL, arts. 24, 25, 29.

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FORCE MAJEURE AND EXCUSE IN CHINA

foreseeable or that the omission was the product of mutual agreement.
The Chinese party to such contracts often has an advantage in this
regard because its delegation typically includes assiduous note-takers
on the content of the negotiations, unlike the foreign party which is
more likely to limit its concern to the items agreed upon in the
contract.6" Thus, the foreign party is less likely to be able to present
reliable extrinsic evidence on the scope of items which the parties
agreed to include or omit from the contract.

The statute also refers to unavoidability.It does not, however,
specify whether an event attributable to a party's government, such as
the denial or suspension of an essential license or access to foreign
exchange, is an unavoidable event from the perspective of a party.
Another issue is what effect state ownership has on a party in such
circumstances. Such questions are left unanswered by the statute.

The statute also defines a force majeure event as an event the
effect of which a party cannot overcome. The Chinese adverb is bu
neng, or "unable". The statute does not, however, distinguish between
impossibility of performance and its more modem variant in commer-
cial law, impracticability of performance. 69 In the former, performance
must be rendered physically impossible through no fault of the party,
while in the latter, nonperformance attributable to external causes may
be excused on the less rigorous grounds that performance would be
financially calamitous even though physically possible.

In addition, in the same manner as its domestic counterpart, the
ECL, the FECL requires that a party invoking force majeure provide
"evidence issued by the relevant agency" that a force majeure event
has occurred. As previously noted, the certifying agency in China is
not the local notariat, but rather, the agency with the substantive
authority regarding the specific type of event.7° Nevertheless, there are
grounds for concern regarding the impartiality of such agencies. Would
the Ministry of Public Security, the Ministry of Justice or the Ministry
of Civil Affairs, as the agency or agencies concerned, decline to certify
a politically embarrassing incident of civil disorder or domestic
insurrection as a force majeure event, even if the parties have included
such events within the scope of their force majeure clause, for fear of

68. Randt, Negotiating Strategy and Tactics, in U.S.-CHINA TRADE: PROBLMIS AND
PROSPECTS 271, 274 (E. Lawson ed. 1988).

69. See discussion of impracticability, infra pp. 89-95. E. FARNSWORT1, supra note 12,
at 677. Cf. Zhao, supra note 6, at 41 (asserting that Article 24 of the FECL sems to embrace
impracticability as well as impossibility, but failing to cite supporting authority). For a
translation, see P. BILANCLA, supra note 38, at 507.

70. See supra notes 60, 61 and accompanying text.

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acknowledging the existence and scope of domestic dissent? Indeed,
the Chinese government has a built-in incentive to refrain from
certifying events as force majeure because such certification may
excuse foreign investors of their contractual duties to supply staff
members and capital to projects within China, activities which not only
promote economic development, but also provide substantial revenue
directly to the host government through rents, taxes and service
charges administered by various agencies, particularly the Ministry of
Foreign Economic Relations and Trade and its subordinate, the Foreign
Enterprises Service Corporation.

Some foreign parties, particularly during the June 1989 Tiananmen
Incident when large numbers of foreign business personnel temporarily
evacuated China, have attempted to circumvent this obstacle by having
their national embassy or business council, or the embassy or business
council of the contractual choice of law state, certify that an event of
force majeure has occurred in China.7' Embassy certification might
suffice to excuse performance due to a foreign government's evacua-
tion advisory to its nationals. There is no indication, however, that a
Chinese tribunal hearing a force majeure case would accept certifi-
cation by a non-Chinese agency regarding an event that actually took
place in China.

The Supreme People's Court has not provided any public guidance
on the construction of the force majeure provisions of the FECL, nor
has it apparently issued any opinions or circulars on this matter. There
also do not appear to be any extensive commentaries in law reviews
on this subject.

One brief commentary states that the language of Article 24
requires that an alleged force majeure event must satisfy the criteria
noted above, i.e., (1) unforeseeability, (2) externality, and (3) both
unavoidability and insurmountability. 2 Although this commentary does
not resolve the ambiguities described earlier, it supplies some minor
additional clarification in the form of examples of events qualifying as
force majeure. Specifically, the scope of force majeure events is said
"unquestionably" not to be limited to natural disasters. Rather, force

71. Chang & Oloffson, supra note 6, at 16.
72. Gongshang Zixun Fuwu Ban Bianzhe (Industrial and Commercial Advisory Service

Page Editor), Zhongguo Shewai Jingli Hetong Fa Zhong de "Bu Ke Kang Li" Shylan Ying Ruhe
Lijie (How to Understand Events of "Force Majeure" in the Foreign Economic Contract Law
of China), JINGJI DAOBAO (Economic Reporter), Aug. 26, 1985, at 42 (hereinafter How to
Understand Events of "Force Majeure"], cited in H. ZHENG, supra note 6, at 68. See also GU
WEI, Fu QIIN & QI ANG, SHEWAI JINGJI FA (Foreign Economic Law) 127-28 (1989)
(hereinafter GU, SHEWAi JINGJI FA].

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FORCE MAJEURE AND EXCUSE IN CHINA

majeure also includes man-made calamities, such as wars and severe
domestic turmoil. 3 Governmental action like the denial of import or
export licenses, an amendment of the economic plan in a planned
economy, labor strikes, and other products of human action or inaction
might also qualify as force majeure events even though, it should be
noted, these are not inherently external events. The commentary adds
that the decision must be made according to the facts of each case,
placing particular emphasis on the dimension of unforeseeability. Thus,
a denial of a license by the government according to a decree in
existence at the time when the contract was executed is foreseeable
and, hence, would not qualify as a force majeure event. Conversely,
a denial of a license resulting from a government decree subsequent
to the execution of a contract would qualify as a force majeure
event.74 The commentary adds that labor strikes are generally unlikely
to qualify as force majeure events because they are likely to be
preventable or avoidable.

In sum, the commentary acknowledges that man-made events and
acts of government may qualify as force majeure events. In so doing,
however, the commentary appears to reflect a bias in favor of
contingencies more likely to affect Chinese parties, such as government
interference and changes in economic plans, while exhibiting some, but
not absolute, hostility to events like labor strikes that, at least until
recently, were more likely to hamper economic performance in free
market economies than in controlled economies.

5. The Joint Venture Law

The Law of the People's Republic of China on Chinese-Foreign
Equity Joint Ventures75 (the "Joint Venture Law"), which applies to

73. Gu, SHEWAI JINGi FA, supra note 72. See also WANG Ji.zGA, XuEZ G Het=oS
(Licensing Contracts). For contracts embodying such provisions, see Boliheng Gangtie Chukou
Gongsi (Maifang) CIF he C&F Xiaoshou de Yban Tiaokuan (Bethlehem Steel Export
Corporation (Seller) General Conditions of Sale C.LF. and C. & F.), in SHzYAI JnI HET %O.G
SHWU (Practise of Foreign Economic Contracts) 65, 73 (Chinese-English version) (Wei Jiaju
Chinese-English ed. 1989); Weisidinghaosi Diand Gongsi Yiban Xiaoshou Tiaojian (Westing-
house Electric Corporation General Conditions of Sale), in SHEwAI JIojI HEro=G SIwVU,
supra, at 79, 86.

74. How to Understand Events of "Force Majeure", supra note 72.
75. JN Law, supra note 13; 1990 Amendments, trans. in E. ASLAN ExEC. REP., Apr. 15,

1990, at 24. The 1990 statute is a revision of the 1979 statute published in 1979, trans. in .
COHEN, supra note 39, at 170. The 1990 version involves housekeeping rather than substantive
amendments. The two versions of Article 13 of the JV Law are identical except that the current
version is more concise and incorporates the current names of government organs. For analysis

1991]



JOURNAL OF CHINESE LAW

longer term ventures than most sales contracts,76 also includes a force
majeure provision.

Article 13 In cases of heavy losses in a joint venture,
failure of a party to fulfill the obligations stipulated in the
contract and the articles of association, force majeure and so
forth, the contract may be terminated through consultation and
agreement by the parties to the venture, subject to approval by
the organ that approved the application to form the joint
venture and to registration with the State Administration of
Industry and Commerce. In cases of losses caused by a breach
of contract, economic responsibility shall be borne by the party
that has breached the contract.77

This statute provides no additional guidance regarding the meaning
of force majeure, except that the use of the term "deng" ("and so
forth") establishes an open-ended set of events allowing excuse for
nonperformance.78 Moreover, by treating force majeure in the same

of the 1979 version, see S. HOOD, K. HERBST & G. LAU, EQUITY JOINT VENTURES IN THE
PEOPLE'S REPULiC OF CHINA (1986); for analysis of the 1990 amendments, see Robertson &
Chen, New Amendments to China's Equity Joint Venture Law. Changes Unlikely to Stimulate
Foreign Investment, E. ASIAN EXEC. REP., Apr. 15, 1990, at 9, 12.

76. Equity joint ventures may now last for unlimited terms, in contrast to the former
maximum length of 50 years. Interim Provisions on Duration of Chinese-Foreign Joint Ventures,
E. ASIAN Exec. REP., Nov. 15, 1990, at 26; Bersani, Some PRC Joint Ventures Granted
Unlimited Terms, E. ASIAN EXEC. REP., Nov. 15, 1990, at 9.

77. IV Law, art. 13.
78. While "deng" as used here appears to apply to all enumerated contingencies rather

than force majeure alone, its use suggests that there may be other, unenumerated excuses for
nonperformance. This usage appears to be an example of the ejusdem generis doctrine. Consider
the following provisions from, first, a sample form contract and, second, an actual contract:

Article 57 When the performance of this Contract is directly affected or this Contract
cannot be performed according to the agreed terms because of earthquake, typhoon, flood,
fire, war and other events of force majeure that are unforeseeable and the occurrence and
consequences of which cannot be prevented or avoided, the party that encounters the
above-mentioned events of force majeure shall immediately inform the other party of the
circumstances of the event by telegram and, within 15 days, provide details of the event,
together with a valid certificate evidencing the reasons for which this Contract cannot be
performed or cannot be performed in part or for which performance needs to be delayed.

Article 15: Force Majeure
15.1 If the conditions of Force Majeure shall prevail for a period in excess of nine

(9) months, then either party, or either member of the JVC (Joint Venture Company), may
cancel this Agreement, the JVC, and all other related agreements, by notice by registered
airmail to the other party without any other formality.

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FORCE AlAJEURE AND EXCUSE IN CHINA

article as breach, the Joint Venture Law, in the same manner as Article
27(4) of the FECL, appears to equate the two types of nonperfor-
mance. As noted earlier, this potentially anomalous result could have
been avoided by the use of a contrast conjunction, but is resolved
elsewhere in the FECL.

Of greater assistance, however, are the more detailed companion
Regulations for the Implementation of the Law of the People's
Republic of China on Chinese-Foreign Equity Joint Ventures79 (the
"Joint Venture Regulations").

Article 102 A joint venture shall be dissolved in the
following situations:

(1) Expiration of the term of the joint venture;
(2) Inability to continue operations due to heavy losses

of this venture;
(3) Inability to continue operations due to the failure of

one of the parties of the venture to fulfill its obligations
set forth in the joint venture agreement, contract or
articles of association;

(4) Inability to continue operations due to serious losses
arising from a natural disaster, war or other event of
force majeure;

(5) Failure of the joint venture to achieve its business
objective, coupled with no possibility for future develop-
ment; or

(6) The occurrence of any other event stipulated in the
joint venture contract or articles of association to be
grounds for dissolution....

Upon the occurrence of the situations described in
paragraph 3 of this Article, the party failing to fulfill its
obligations set forth in the joint venture agreement, contract or

The provision listing force majeure events is open-ended in the fist contract, i.e., "and other
events of force majeure,' while the similar provision in the second contract does not define the
term force majeure at all. Similar provisions exist in other form contracts. See Zhongguo Jixie
Shebei Jinchukou Gongsi Xiaoshou Hetong (China National Machinery & Equipment Import &
Export Corporation Sales Contract), in SWAI JINWI HETONM SH1WU, supra note 73, at 45-47;
China National Machinery Import and Export Corporation Purchase Contract, in SHV'1AI J NJI
HETONG SHIWU, supra note 73, at 56; and Zhongfang Huaxian Maoma Jinchukou Gongsi
Xlaoshou Querenshu (Chinatex Non-Cotton Yarns & Fabrics Import & Export Corporation Sales
Confirmation), in SHEwAI J Gji HETONG SHiwu, supra note 73, at 33-34, 38.

79. Regulations for the Implementation of the Law of the People's Republic of China on
Chinese-Foreign Equity Joint Ventures (promulgated Sept. 20, 1983), trans. in I. COHEN, supra
note 39, at 172.

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articles of association, as the case may be, shall be liable to
the joint venture for the losses caused thereby.80

The Regulations are remarkable not just for clarifying the rule that
a party invoking force majeure is absolved from liability to the other
party except for a dissolution arising from the failure of a party under
condition (3). More important is the stipulation that "serious losses"
under condition (4) or "heavy losses" under condition (2),81 as well
as absolute impossibility, may warrant dissolution. This provision
indicates that a defense predicated on commercial impracticability82

arising from an external event, as well as physical impossibility arising
from such an event, may be successful under some circumstances, at
least with regard to equity as opposed to cooperative or non-equity
joint ventures.8 3

6. International Convention

International sales contracts involving the PRC are governed by the
United Nations Convention on Contracts for the International Sale of
Goods (CISG),s to which the PRC has been a party since CISG

80. Ia, art. 102.
81. The Chinese language term in both instances is "yanzhong" which indicates that there

is merely a stylistic distinction between "serious" and "heavy" in translation.
82. See discussion on impracticability, infra pp. 89-95.
83. The Law of the People's Republic of China on Chinese and Foreign Cooperative Joint

Venture Enterprises (promulgated Apr. 13, 1988), trans. in J. COHEN, supra note 39, at 190.
For discussion, see Bates & Wang, The New Cooperative Joint Venture Law, E. ASIAN EXEC.
REP., May 15, 1988, at 7; Cohen, The Long-Awaited Cooperative Venture Law, CHINA BUS.
REV., July-Aug. 1988, at 14; Horsley, Cooperative Joint Venture Law, INT'L FIN. L. REv., June
1988, at 47. See also discussion of impracticability, infra pp. 89-95.

84. United Nations Convention on Contracts for the International Sale of Goods, U.N.
Doc. AL CONF. 97/18 (1980) [hereinafter CISG].

[5:58



FORCE MlAJEURE AND EXCUSE IN CHINA

came into force on January 1, 1988. CISG, of course, has its own
provisions pertaining to force majeure.

Article 79
(1) A party is not liable for a failure to perform any of

his obligations if he proves that the failure was due
to an impediment beyond his control and that he
could not reasonably be expected to have taken the
impediment into account at the time of the conclusion
of the contract or to have avoided or overcome it or
its consequences.

(2) If the party's failure is due to the failure by a third
person whom he has engaged to perform the whole
or a part of the contract, that party is exempt from
liability only if:
(a) He is exempt under the preceding paragraph;
and
(b) The person whom he has so engaged
would be so exempt if the provision of that para-
graph were applied to him.

(3) The exemption provided by this article has effect
for the period during which the impediment exists.

(4) The party who fails to perform must give notice to
the other party of the impediment and its effects on
his ability to perform. If the notice is not received by
the other.party within a reasonable time after the
party who fails to perform knew or ought to have
known of the impediment, he is liable for damages

85. Zuigao Renmin Fayuan Zhuanfa Duiwai Jmgji Maoyi Bu Guan) Zhixing Lianheguo
Guoji Huovw Xiaoshou Hetong Gongyue Ying Zhuyi de Jige Wenti" de Tongzhi (Supreme
People's Court Circular Transmitting "Some Questions Warranting Attention Involving the
Implementation of the United Nations Convention on the International Sale of Goods" to the

inistry of Foreign Economic Relations and Trade), 1988 ZuIGAO FAYUAN GONGBAO 19
[hereinafter Questions on Implementation of UNCISG]. For commentaxy, see Ren Jisheng & Lin
Fangfang, Lun "Lianheguo Guoji Huowu Xiaoshou Hetong Gon)ue" de Peichang Yuanze (On
the Principle of Compensation in the "United Nations Convention on Contracts for the
International Sale of Goods"), 1989 FAXJE YANHu 77; Sun Nanshen, Duanping "Lianheguo
Guoji Huowu Xiaoshou Hetong Gongyue" (A Brief Analysis of "UNCISG'), 19S7 JLANGSU
DuIWAI JINGMAo LUNTAN (Jiangsu Foreign Economic and Trade Forum) 9, reprinted in 1987
FAXUE 155 (Reprints); Torbert & Zhao, The U.N. Convention on the International Sale of
Goods: How Will It Affect U.S. Trade With China, CHINA Bus. REv., Sept.-Oct. 1987, at 52;
Wang Chengbin, supra note 15, at 106, 112 (1989) (asserting that no essential difference exists
between "impediment" in the CISG and "force majeure" in Chinese law).

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resulting from such non-receipt.
(5) Nothing in this article prevents either party from

exercising any right other than to claim damages
under this convention.86

Because China attached no reservations to its accession to CISG,87

CISG apparently applies in all aspects even though CISG contains no
provision for certification of force majeure events and adheres to a
broader doctrine of excuse than apparently exists in Chinese statutory
law.

Professor Honnold, one of the drafters of CISG, summarized the
principal elements of an Article 79 excuse as externality of the cause,
reasonable unforeseeability of the event, and reasonable unavoidability
and inability to overcome the event or its consequences.8 Excuse
would be available to either party, in contrast to Section 2-615 of the
Uniform Commercial Code 9 which applies only to the seller. °

CISG, while sometimes presenting problems of application, is intended
to reflect and encourage the development of a uniform body of internal
law. 9' Of particular note is the fact that the drafters of CISG con-
sciously refrained from adopting the older and more restrictive term
"impossibility," the application of which has eroded in favor of more
commercially defined definitions requiring "failure to perform ... due
to an impediment beyond his control."'  While the drafters also did
not adopt the term "frustration," which allows excuse on the grounds
of economic hardship, the drafters acted, in part, on the assumption

86. CISG, art. 79.
87. See Questions on Implementing UNCISG, supra note 85.
88. J. HONNOLD, UNIFORM LAW FOR INTERNATIONAL SALES UNDER THE 1980 UNITED

NATIONS CONVENTION 427 (1987).
89. "Except so far as a seller may have assumed a greater obligation...
(a) Delay in delivery or non-delivery in whole or in part by a seller.., is not a breach
of his duty under a contract for sale if performance as agreed has been made impracticable
by the occurrence of a contingency the non-occurrence of which was a basic assumption
on which the contract was made or by compliance in good faith with any applicable
foreign or domestic governmental regulation or order whether or not it later proves to be
invalid .. "

UNIFORM COMMERCIAL CODE § 2-615 (1990).
90. J. HONNOLD, supra note 88, at 430. China, by contrast, tended to favor the buyer by

denying the seller a force majeure right in its standard form international purchase contracts,
particularly the older versions, because the Chinese party more commonly was the buyer. See
Note, An Analysis of Chinese Commercial Policy and Practice, 27 WAYNE L. REV. 1229,
1244-45 (1981).

91. J. HONNOLD, supra note 88, at 433-34.
92. Id at 433.

[5:58



FORCE MAJEURE AND EXCUSE IN CHINA

that such grounds are encompassed by impracticability, i.e., that "an
extreme and unforeseeable change in economic circumstances" could
itself qualify as an "impediment" under Article 79(1). 3

IV. THE DEVELOPMENT OF FORCE MAjEURE iN THE PRC

For the practitioner, the manner in which force majeure is actually
implemented in the PRC is even more important than academic
analyses of statutes because the PRC's statutory laws on force majeure
are undeveloped and contain a number of ambiguities that make it
difficult for parties to rely on purely statutory law. Additionally, there
are important restrictions on the actual exercise of a force majeure
clause. For instance, Chinese law appears to restrict the use of force
majeure by tacitly excluding the words "frustration," "impracticability"
and "impediment' from statutory clauses concerning force majeure. On
the other hand, there also appear to be some elements in Chinese law
that permit invocation of a force majeure excuse on grounds less
restrictive than physical impossibility. Moreover, the parties are free to
include whatever terms they wish in the force majeure clause of their
contract. Even though the Chinese party to an international transaction
ordinarily will seek to impose the force majeure provision contained
in its standard form contract (a gambit that foreign parties should
oppose),' even this provision tends to leave some latitude for
defining the scope of force majeure.

Certain examples of the application of excuse doctrines in Anglo-
American and International Law can be used to illustrate how the
Chinese may develop and refine the application of force majeure in the
PRC.

A. Impracticability and Related Excuse Doctrines

Force majeure is closely related to other judicial doctrines,
especially mistake, frustration of purpose, or impossibility of perfor-

93. Id. at 442-43. See also INTERNATIONAL CHIBER OF COmimERC, supra note 10,
comment 3 (Force Majeure E.Iemption Clause), at 11 C"[mpediment] signifies that circumstances
making it inconvenient or more onerous for the obligor to perform are not enough, and much
less circumstances which merely make the other party's performance less valuable for the first
party to receive. On the other hand it would be too strict to require that prformance has
become absolutely impossible. It should, however, be some kind of obstacle which has
prevented performance as normally foreseen.").

94. See generally L COHEN, supra note 39, at 19 (asserting that a foreign party should
not accept the Chinese party's standard form contracts without modifications and dditions).

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mance,95 which serve to excuse nonperformance or delayed perfor-
mance by a party to a contract arising from causes other than mere
changes in market conditions. In other words, even when the specific
event that is said to cause nonperformance is not expressly addressed
by the language of the contract, in at least some circumstances, courts
have not treated such omission as the product of an agreement by the
parties to let the risks fall on the nonperforming party.96 Rather, these
courts have held that reform or even avoidance of the contract may be
warranted when the contingencies causing nonperformance or delayed
performance were not actually foreseen by the parties and were
unforeseeable, when both parties were mistaken as to the occurrence
or effect of these contingencies, when the contingencies so altered the
conditions governing performance by one party that its purpose for
entering into the contract was frustrated or when the contingencies
made performance physically or merely practically impossible.

A summary of the application of doctrines of excuse in Anglo-
American and international law may be helpful in determining how
such doctrines may eventually develop in the PRC. Although the
frustration of purpose doctrine' was at least tacitly rejected both by
China and in the CISG, there is some latitude for a defense predicated
on mutual mistake9 8 or the more modem doctrine of commercial
impracticability. 9 The impracticability defense does not require that
the parties foresee existing fact; however, such foresight is an obvious
precondition for the invocation of a mutual mistake defense. 1 Thus,

95. See E. FARNSWORTH, supra note 12, at 670-705 (1982); G. GiLMoRE, Tim DEATH OF
CONTRACT 80-83 (1974); Sirianni, The Developing Law of Contractual Impracticability and
Impossibility (pts. 1 & 2), 14 U.C.C. L. J. 30, 146 (1981).

96. For an argument that omissions should be exempt from judicial modification when
they are the product of consensual bargaining between the parties, see Berman, Excuse for
Nonperformance in the Light of Contract Practices in International Trade, 63 COLUM. L. REV.
1413 (1963). Cf. E. Farnsworth, Disputes Over Omission in Contracts, 68 COLuM. L. REV. 860
(1968).

97. A "frustration of purpose" excuse exists when an event, which both parties assumed
would not occur and which was not the fault of the party seeking to be excused, renders that
party substantially unable to gain its expected principal benefit upon which the contract was
based. E. FARNSWORTH, supra note 12, at 690-91.

98. A "mutual mistake" excuse exists when both parties to a contract are under the same
erroneous belief, which was a basic assumption on which the contract was made, which had a
material effect on both parties' performances and which was not a risk that the party seeking
to be excused had contracted to bear. Id, at 653-54.

99. Commercial Impracticability is generally understood to mean impracticability of
performance arising from a cause other than the fault of the party seeking excuse yet which
goes to a basic assumption on which the contract was predicated. Id, at 678.

100. RESTATEMENT (SECOND) OF CONTRACTS § 266(1) (1981); Atlas Corp. v. United
States, 895 F.2d 745, 751-52 (Fed. Cir. 1990).

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impracticability has greater application to the effects of future events.
Impossibility applies to situations in which performance is rendered
physically impossible, e.g., a farmer who contracts to deliver crops
from a particular field may invoke an impossibility defense when the
crops are destroyed by the weather. Under the impracticability doctrine,
however, a party may excuse nonperformance attributable to external
causes on the less rigorous grounds that performance would be
financially calamitous even though physically possible. While the
phrase "bu neng" implies that Chinese law has adopted the doctrine of
impossibility of performance, "li~xing de bu keneng xing", it does not
definitively exclude the doctrine of impracticability. Rather, "impracti-
cability", which, like impossibility, is translated as "bu neng xing" in
ordinary language, does not appear in legal dictionaries."0' Thus, the
term "impracticability" is absent from Chinese legal discourse.
However, the absence of commentary on the doctrine of impracti-
cability suggests that Chinese jurisprudence simply may not yet have
encountered the need to interpret the term. Thus, it is conceivable that
impracticability would constitute an acceptable defense in certain fact
situations.

The impracticability doctrine has gained increased acceptance in
other countries in recent years, particularly with regard to long-term
supply contracts that are comparable in length not only to long-term
purchase and sales contracts, but also to joint venture contracts in
China. These supply contracts differ from ordinary sales-of-goods
contracts in at least two respects. First, their longer term increases the
risk of unforeseeable contingencies which may render the contract
commercially impracticable or may frustrate the purpose of one party.
Second, the goods that are the subject of the contract are more likely
to be made-to-order, which would reduce the ability of the parties to
absorb production or distribution risks by hedging or other means in
order to obtain substitute goods from alternative sources.

In Aluminum Co. of America v. Essex Group, Inc.,"12 a wire
manufacturer in Indiana signed a long-term contract (1967 - 1983
with an option to renew for five more years) with an aluminum
producer. Essex, the wire manufacturer, agreed to provide raw alumina
to Aluminum Co. of America ("Alcoa") for smelting into molten
aluminum which in tam would be shipped to Essex for processing into

101. See sources cited supra note 38. See also ENGLisH-FRENH-CHD'EsE DiCIONARY
OF ITCERNATIONAL LAW (Wang Tieya ed. 1983).

102. 499 F. Supp. 53 (W.D. Pa. 1980); see also Speidel, Court-Imposed Price Adjusmnts
Under Long-Term Supply Contracts, 76 NW. UNIV. L. REV. 369 (1981).

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wire. A price escalator clause was built into the contract based in part
on labor production costs, which were under Alcoa's control, and in
part on non-labor production costs which were external to Alcoa and,
by agreement of the parties, pegged to changes in the Wholesale Price
Index (WPI). However, aluminum is an energy-intensive industry, and
the energy crisis of the early 1970s gravely weakened the linkage
between the WPI and Alcoa's production costs. Alcoa soon found itself
losing millions of dollars on the contract every year while Essex
profitably resold unprocessed aluminum to other buyers. Alcoa sued to
reform the contract and the court found for Alcoa, even though
performance by Alcoa remained possible. The court reasoned that the
parties had intended to equitably apportion the risk but by mutual
mistake had chosen an improper price escalation formula which went
to a basic assumption of the agreement, thereby warranting judicial
reformation of an agreed risk allocation provision. ' °3

The court's conclusion rested on a holding that the parties' mistake
was fundamentally one of fact, inasmuch as the parties intended to
agree upon a fair cost-and-price-adjustment formula based on historical
data. Their mistaken assumption thus "was essentially a present
actuarial error" rather than an error of judgment or a projection of
future events, neither of which are actionable under the doctrine of
mutual mistake. 104

The court then proceeded to reach the same conclusion on the
related grounds of impracticability and frustration of purpose. There is
no duty to perform if an unforeseeable event going to a basic
assumption of the contract renders performance impracticable,'05 and
the duty to perform is discharged if an event, the non-occurrence of
which goes to a basic assumption of the contract, occurs and
substantially frustrates a party's principal purpose,' ° provided that
the fact or occurrence in question is not the fault of the party seeking
relief. The court held that Alcoa never agreed to assume the full risk
of an unforeseeable loss of such magnitude.' °7

Similarly, in Florida Power & Light Co. v. Westinghouse Elec.
Corp.,' °8 the Fourth Circuit invalidated a long-term supply contract.
This decision emerged at the tail end of one of the most complex and

103. 499 F. Supp., at 70.
104. Id. at 63.
105. RESTATEMENT (SECOND) OF CoNTRACTs § 266 (1981).
106. Id. at 265.
107. 499 F. Supp., at 76.
108. 826 F.2d 239 (4th Cir. 1987), cert. denied, 485 U.S. 1021 (1988).

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seminal series of decisions involving an interrelated set of transactions
in the history of the United States."° In Florida Power & Light, an
electric utility sued a builder of nuclear power plants for breaching its
contractual promise to reprocess spent nuclear fuel rods. Westinghouse,
the plant builder, raised a defense based largely on unforeseeability and
commercial impracticability, namely, that reprocessing had been agreed
to in the belief that reprocessing would become commercially
practicable during the term of the contract. In the interim, however, the
United States government had abandoned commercial reprocessing,
rendering performance impossible. The court found for Westinghouse
on grounds of technical impossibility and commercial impracticability
attributable to an unforeseeable contingency that negated the conditions
essential to performance.

In addition, the Supreme Court in a public utility case upheld a
state law limiting the exercise of contractual price escalator clauses in
windfall profit situations created by the relaxation of government price
controls, rejecting a constitutional challenge predicated on the doctrine
of state impairment of contractual obligations. The Court established
a three-pronged test that is deferential to state legislatures on such
laws: (1) does the state law impose a substantial impairment of a
contractual relationship defined in terms of the reasonable expectations
of the parties?; (2) even if the state law imposes a substantial
impairment on a contractual relationship, is the impairment justified by
a significant and legitimate public purpose, including the remedying of
a broad and general social or economic problem, such as "the
elimination of unforeseen Windfall profits"?; and (3) if the impairment
serves a legitimate public purpose, is it based upon reasonable
conditions and is it appropriate to the public purpose that justifies the
impairment? Strict scrutiny is warranted only when the state alters its
own contractual obligations and thus is affected by a conflict of
interest.110

109. See also Westinghouse Elec. Corp. v. Kerr-McGee Corp., 580 F.2d 1311 (7th Cir.
1978), cert. denied, 439 U.S. 955 (1978) (conflict of interest); In re Westinghouse Elec. Corp.
Uranium Contract Litig., 405 F. Supp. 316 (E.D. Va. 1975) (finding that a nuclear power plant
builder accepted the risk of fluctuations in the price of raw materials, and hence to have
assumed liability for damages for breach of contract, notwithstanding the possibility that the
price rise may had been attributable in part to the acts of an international cartel). For an overall
analysis, see Joskow, Commercial Impossibility, the Uranium Market and the Westinghouse
Case, 6 J. LEGAL STUDIES 119 (1977).

110. Energy Reserves Group v. Kansas Power & Light Co., 459 US. 400 (1983); see also
Exxon Corp. v. Eagerton, 462 U.S. 176 (1983) (incidental impairments of contractual obligations
are immune from constitutional challenge).

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As a further sign of evolving international usage of doctrines of
excuse, which may influence the parties and Chinese tribunals, the
International Chamber of Commerce has prepared an optional hardship
rider to its standard force majeure clause that would permit reform of
contracts made onerous by unforeseen circumstances."'

Naturally, all courts properly remain extremely reluctant to avoid
or reform an otherwise valid contractual relationship because variable
factors yielded results not in conformance with one party's original
expectations. In Wabash, Inc. v. Avnet, Inc.,"' the parties linked the
final price of a sale of assets to changes in GNP without including an
inflation index."' The court held that the aberrant performance of a
variable factor at most involved a mutual mistake about future events
rather than a mistake about an existing fact at the time of contracting,
and hence, was not actionable.

In Printing Industrial Association v. International Printing and
Graphic Communications Union,"4 the parties opted for a Cost of
Living Adjustment clause based on the local rather than the national
Consumer Price Index. The industry association balked when the local
index suddenly accelerated in a manner not matched by the national
index, perhaps because of distortions created by the small size of the
local sampling set."' Although the court held that a mutual mistake
had occurred with regard to a variable factor, it still found for the
union on the theory that the parties had agreed to assume the risks of
price fluctuations. 6 There also was no finding of frustration of
purpose because the amount of money at stake was modest, and also
because the contract was of brief duration." 7 By contrast, Alcoa
involved a very large contract that was to run for at least 16 years, the
accuracy of which went to a basic assumption of the contract.

These cases indicate that there is a somewhat greater willingness
among courts to consider reform of contracts when the allocation of
returns has been substantially altered by unforeseeable, or at least
unforseen, events. The party seeking relief nevertheless faces a heavy
burden of proof. That burden is more easily satisfied in cases involving
contracts of very long duration, and when there is detailed evidence
about how the parties intended profits and risks to be apportioned in

111. INTERNATIONAL CHAMBER OF COMMERCE, supra note 10, at 18-27.
112. 516 F. Supp. 995 (N.D. IM. 1981).
113. Id. at 999.
114. 628 F. Supp. 1103 (N.D. Ohio 1985).
115. Id. at 1106, 1111.
116. Id. at 1109.
117. Id. at 1111.

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FORCE MAJEURE AND EXCUSE IN CHINA

future years on the basis of their understanding of existing facts.'1 8

Despite the differences between PRC law and law in other
jurisdictions, the basic logic of long-term contracts and contracts for
unique goods found in Alcoa and Florida Power & Light ultimately
may be persuasive in the PRC. Indeed, there are contemporary
examples of long-term contracts being reformed in response to changed
circumstances reminiscent of the doctrine of mutual mistake." 9 The
principal and very important variation is that PRC courts are more
reluctant to act on their own unless there has been a formal change in
government policy legitimating the reform of the contracts in ques-
tion. 20

B. Development of Doctrines of Excuse in the PRC

1. Fruit Orchard Management Contracts

Fruit orchard management contracts represent an area of Chinese
law where doctrines of excuse have been addressed. Like agriculture
in general, fruit production was collectivized and the role of markets
greatly diminished in the 1950s. Ownership and production manage-
ment were subsequently decentralized in the 1960s down from the
massive people's communes to the much smaller production teams and
brigades. Nevertheless, collectivization and state allocation continued
to exert decidedly adverse effects on production into the 1970s.

Therefore, the post-Mao regime resolved in 1978 to convert
agriculture to a household management system under which the
collectives retained land and some other property ownership rights
while management rights were assigned to households under production
responsibility contracts.' The usual term of such contracts for
ordinary cropland was one year, during which time price fluctuations
were relatively modest. However, annual contracts were less suitable
for forests, fruit orchards and other property characterized by long-term
production processes requiring several years of cultivation before the
initial harvest and further care to extend the productive life of the
assets. Hence, upon discovering that annual contracts were unsatis-

118. Cf. the distinction between conscious and unconscious ignorance in In re
Westinghouse Elee Corp., 517 F.Supp. 440, 458 (E.D. Va. 1981).

119. See discussion of Fruit Orchard Contracts, infra pp. 95-102.
120. Yang Zhenshan, supra note 15, at 56.
121. See generally, Kojima, Agricultural Organization & New Forms, New Contradictions,

116 CHINA Q. 706 (1988); Kueh, The Economics of the "Second Land Reform" in China, 101
CHNA Q. 122 (1985).

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factory for such crops, contract terms were extended or new contracts
were negotiated with terms of up to 15 years or for the trees'
productive life with regard to fruit trees, and up to 50 years or for the
length of the normal rotation with regard to commercial forests.2

Problems arose several years after the contracts were signed,
however, in instances when the decontrolled prices of fruit, timber or
other such long-term crops rose at much faster rates than those of
grain and cotton, which remained subject to state price ceilings."n

Successful forest contractors (chengbao fang) in such instances were
in a position to make large profits after paying modest land use and
other fees to the collective, to the discomfiture of the collective
property owner (fabao fang) and their less fortunate neighbors with
staple crop management contracts.1 24

Large numbers of disputes involving such contracts arose in the
countryside during the mid-1980s, particularly in Shandong Province,
which is one of the country's leading fruit producers. The principal
issue concerned the enforceability of contracts subject to substantial
price fluctuations. The collective property owners argued that the
contracts were unfair and hence unenforceable. Naturally, the contrac-
tors responded that the contracts had been validly executed and hence
were fully enforceable. The result was serious social conflict in the
countryside and negative effects on production.

The issue of whether such contracts could be modified over the
objections of the contractor was eventually decided in the affirmative.
The Supreme People's Court held that modification or rescission of
such contracts was permissible on several grounds, the most important
of which involved changes in state tax, price or other policies causing
major changes in the returns enjoyed by the parties.12

In other words, as noted above in the discussion of Article 27(2)
and (3) of the ECL, modification or rescission of contracts may be

122. L. Ross, supra note 1, at 71. Note that this issue only applies to collective orchards
and plantations, not to household lots where the trees are owned by households. Interview with
Qi Zhaolian, Chief, Zhang Shujun, Deputy Chief, Xing Jiyang, Section Chief, Yang Yongqing,
Station Chief, and Xing Zhishui, Station Chief, Zouping County (Shandong) Forestry Bureau,
in Zouping Co. (Shandong) (Sept. 3, 1990).

123. On agricultural price reform, see generally, Sicular, Agricultural Planning and Pricing
in the Post-Mao Period, 117 CHNA Q. 671 (1988).

124. Interview with Zhang Chuanming, Chief, and Sun Xinyi, Deputy Chief, Zouping
County (Shandong) Justice Bureau, in Zouping Co. (Shandong) (Jan. 8, 1990) [hereinafter
Interview with Zhang Chuanming]. On the debilitating effect of persistent price controls on
producer price incentives, see Watson, Investment Issues in the Chinese Countryside, 22
AUsTRAL. J. CHNEs. AFFAiRs 85, 87-88, 110-11 (1989).

125. Supreme Court Circular, supra note 43, para. 4.

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FORCE MAJEURE AND EXCUSE IN CHINA

ordered in response to changes in state policy or the state plan as well
as to excuses specific to the contract in question. In this instance,
modification may have produced a more equitable outcome than
enforcement of the contracts as written. The entire Chinese countryside
lacked familiarity with economic contracts in the early 1980s when the
multi-year contracts were negotiated, resulting in the adoption of fixed
fees without price escalator clauses.1 6 More importantly, there does
not appear to have been any particular reason for the parties on either
side to have anticipated that state price policy would make fruit
production markedly more profitable than staple crop production.

In this respect, the unequal effect of state price and other policies
on household income was both unforeseeable and unforeseen. Thus, the
Supreme People's Court's holding cannot be viewed merely as crudely
legitimating the state's power to alter voluntary contracts. Rather, the
Court was announcing a doctrine similar to mutual mistake, the result
of which was to convey an unbargained-for benefit to one party at the
expense of the other. In this respect, the Court's reasoning is
comparable to that of the Alcoa court which reformed a contract
because of unanticipated price changes, notwithstanding the fact that
the parties had expressly agreed on the price terms embodied in the
contract.

Following the ruling by the Supreme People's Court, or as the
result of a prior voluntary agreement obtained through negotiation,
conciliation, mediation or some combination thereof,"z the parties in
many instances revised the original payment terms by increasing the
contractor's payments in cash or kind to the collective property owner
or the other members of the collective, often by incorporating a
profit-sharing escalator clause tailored to changes in state price policy.
Other contracts were terminated in favor of new contracts.

An examination of several fruit orchard production responsibility
contract disputes from a Shandong county illuminates these issues. For
example, a dispute arose in Shijiang Village, Zouping County Town,
between eleven households who prospered by managing the village's
apricots and poplars under contract, and their neighbors who watched
enviously as the price of apricots quadrupled during the 1980's. Some
neighbors stole fruit and vandalized trees. A county work team was

126. Interview with Zhao Jirang, supra note 61.
127. Id. On dispute resolution in general, see Ross, The Changing Profile of Dispute

Resolution in Rural China: The Case of Zouping County, Shandong, 26 STAN. J. IN'L L 15
(1989); Salbaing, Dispute Settlement in China, in DOING BtUSNESS IN CHINA, supra note 3, at
§ 21.

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organized to investigate this dispute and others like it. While upholding
the validity of the underlying contract which was deemed to have been
lawfully executed and faithfully implemented, the work team also held
that the contract was subject to revision because of the rise in fruit
prices. The parties then agreed to modify the contract by generally
doubling the annual responsibility fee paid by the contractors to the
village, and by incorporating a price adjustment factor into the
contract. Fines were also imposed on those individuals who stole
apricots or who illegally cut down poplars and other trees. 28

By contrast, courts in the very same county have regularly enforced
contracts against contractors in annual staple crop production responsi-
bility contracts who failed to pay their land use fees. The new
manager of the county agricultural experiment farm made extensive use
of the courts in this regard to bring suit against delinquent contractors.
Although these contractors invoked force majeure to excuse their
nonperformance, the courts ruled against those contractors who were
unable to prove that their poor harvests were due to genuinely external
or natural causes rather than their own ineptitude or lack of effort. The
first such court holdings in favor of the experimental farm reportedly
persuaded other contractors to quickly pay their debts. 2 9

Contractors have prevailed in a narrow range of cases, however,
particularly when performance was rendered impossible by the death
or disability of a principal part of the contractor's labor capacity. Since
the contractor is ordinarily a household or small group of farmers, such
holdings are an application of the familiar doctrine that nonperfor-
mance is excused in personal performance contracts when the party is
physically unable to perform.30

While the general position of the Chinese courts is clear in this
regard, it must be noted that the Chinese populace remains reluctant
to engage in litigation, although there is a discernible trend in favor of
a greater willingness to rely on judicial remedies.'13  Therefore,

128. Described in Interview with Zhang Chuanming, supra note 124.
129. See, e.g., Zouping County Agricultural Experiment Farm v. Wang Zesheng, Zouping

County People's Court, Mediation Document (1989), Zou Fa Jing Zi No. 8; Zouping County
Agricultural Experiment Farm v. Zhang Sihua, Zouping County People's Court, Mediation
Document (1989), Zou Fa Jing Zi No. 9, two of six cases based on apparently comparable facts
resulting in comparable rulings in favor of the plaintiff. All six cases were read and summarized
in note form by the author in an Interview with Zhao Jirang, supra note 61 (Jan. 8-9, 1990).

130. This principle is embodied in United States common law in the RESTATEMENT
(SECOND) OF CONTRACTS § 262 (1981).

131. See supra note 33 and accompanying text. Within Shandong Province specifically,
the number of suits filed in the Economic Chamber of the judicial system increased very rapidly
following its establishment in 1979. The number of cases rose from 3 in 1979 and fewer than

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FORCE MAJEURE AND EXCUSE IN CHINA

disputes over fruit orchard management continued to fester for several
years after the Supreme People's Court's ruling.11 This forced the
Shandong provincial government and local governments to conduct
investigations and to issue policy directives ordering contract reform
where acute price changes had resulted in unbargained-for advantages.

In response to the large numbers of disputes arising from external
changes in state policy affecting production guarantee contracts,
Shandong eventually promulgated a set of regulations to "strengthen"
(jiaqiang) the management of such contracts by providing clearer
guidelines to the parties and the courts for the content, validity and
modification of such contracts. For our purposes, the crucial item is
the inclusion of an additional ground for contract modification, i.e.,
changes in state tax or price policy as permitted by the Supreme
People's Court in 1986."3 The Shandong regulations provide as
follows:

Article 16 Modification of a contract is permissible under any
of the following circumstances:

(1) If both parties agree through consultation, and if
such [modification] would not damage the social and
public interests of the State, the collective, third
parties or society;

(2) If the State plan on the basis of which the production
guarantee contract was concluded is amended;

(3) If State tax or price policies are amended or if market
prices fluctuate creating a relatively large change in
the allocation of benefits;

(4) If force majeure makes it impossible to perform the
contract on schedule; or

(5) If the managing party is unable to perform part of the

200 in 1980 to over 5,000 in 1984 and over 80,000 in 1986 before levelling off at just below
60,000 in the late 1980s. The increase in the mid-1980s was due in part to the rise in rural
production responsibility contract disputes. Interview with Zhao Lianting, Vice President in
Charge of the Economic Chamber, Yang Sheng, Chief Judge of the Administrative Chamber,
and other Judges of the Shandong Provincial -ligher Court, in Yman (Shandong) (Jan. 19, 1990)
[hereinafter Interview with Zhao Lianting].

132. According to the Shandong Provincial High Court, the courts will accept suits to
enforce original contracts in the absence of a government policy directive authorizing
modification, or if the facts of the case in question are not embraced within the scop- of the
government directive. Once the government has authorized modification, however, the courts will
no longer enforce the original contract. Interview with Thao Lianting, supra note 131 (referring
specifically to contracts involving price changes).

133. See Circular on Some Questions, supra note 66.

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contract because of a change in population [i.e., labor
force] or other factor. 34

Article 16(1) merely permits voluntary modification and corre-
sponds directly to Article 27(1) of the ECL.1 35 Article 16(2) similarly
establishes the primacy of the state plan in the areas where it still
applies and corresponds directly to Article 27(2) of the ECL.136

Article 16(4) allows modification when required by unforeseen,
unforeseeable and unavoidable events peculiar to the specific contract
or contracts, and directly corresponds to Article 27(4) of the ECL.137

Article 16(5) allows modification, and Article 17(6)138 allows
rescission, when the managing party is unable to perform as originally
agreed because of a reduction in its labor capacity, usually arising
from the death or incapacity of the head of household or principal
member(s) of the managing group or household. Although this
provision is an innovation in positive Chinese law, it merely fills what
appears to be a gap in Chinese law with regard to excused nonperfor-
mance in personal services contracts arising from the death or
incapacity of the party performing personal services. 139 This provision
is required because production responsibility contracts are essentially
personal services contracts. Therefore, death or incapacity renders
performance impossible. This provision also is efficient because the
collective, now usually a village with a population of one hundred or
more households, is clearly the superior risk bearer.

The major innovation is Article 16(3) which pertains to state tax
and price policies. The new directive permits contract modification, but
not rescission, when changes in the state's tax and price policies alter
the allocation of risks and benefits between the parties after a contract
has been executed. In this respect, the new provision acknowledges
that tax and price policy have acquired an importance in the reform
period comparable to that of the state plan in terms of their effect on

134. Shandong Sheng Nongcun Jiti Jingii Chengbao Hetong Guanli Tiaoli (Shandong
Provincial Articles for the Management of Rural Collective Economic Production Guarantee
Contracts), Dazhong Ribao, Dec. 30, 1989, at 2, col. 1.

135. ECL, supra note 47, art. 27(1).
136. Id., art. 27(2).
137. Id., art. 27(4).
138. Id., art. 17(6). Article 17 states the following: "It shall be permissible to rescind a

contract if any one of the following situations occurs:...
(6) the contracting party (chengbao fang) loses the ability to contract, making the contract
completely impossible to perform; . .."
139. A classic case excusing nonperformance in a personal services contract is

Yerrington v. Greene, 7 R.I. 589 (1863).

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contract performance.
The new provision allows plaintiffs to present evidence on the

effect of changes in state tax or price policy on contract performance.
Mediation committees and the courts will no longer enforce contracts
regardless of such changes. Instead, these organs will consider evidence
of the existence of such changes, the magnitude of their effect on the
allocation of risks and benefits between the parties, and whether the
changes were or were not foreseeable and foreseen by the parties when
the contract was negotiated.

The new provision is unlikely to have any major impact on
short-term management contracts, which are more suited for field
crops, but is likely to affect long-term contracts for long production
cycle assets like fruit orchards. The principal effect is likely to involve
greater pressure on the advantaged party (i.e., the managing party in
the fruit orchard cases) to agree to a modification of the contract. If
the advantaged party fails to agree to modification at the conciliation
or mediation stages, then the dispute may go to court. If the court also
fails to mediate a settlement, then the case will go to trial." Trials,
as a general matter, are increasingly likely.1 41

The impact of the Articles remains unclear, but local officials have

140. See, e.g., Han Peiqian v. Sun Zhaoyi, Zou Mlin Zi (89) Zou Min Zi No. 37 (annual
contract guarantee fee increased from 900 RMB to 10,000 RNTB); rev'd on this point, Huinin
Intermediate Court (88) Min Zi No. 151 (contract guarantee fee not in dispute). This case was
read and summarized in note form by the author in an Interview with Zhao Rirang, supra note
61.

141. Just a few years ago, upwards of 99 percent of all economic cases in Shalndong were
settled at the mediation or conciliation stage. A higher percentage of cas are going to trial
now, even as the number of cases increases, as indicated in the following table:

Disposition of Economic Law Cases in

Shandong Province, 1985-1989

Year Percentage Settled at Pre-Trial Stage

1985 99.1
1986 98.95
1987 97.65
1988 97.28
1989 95.27

Interview with Zhao Lianting, supra note 131.
Members of the Shandong Provincial High Court attributed the diminished, albeit still very

high, popularity of mediation to the growing complexity of the cases, making settlement less
likely. Id. It seems, however, that the greater value of the claims, easier access to the courts
and legal counsel, and weakened social inhibitions regarding the assertion of personal interests
also are factors. Ross, supra note 127.

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stated that they expect implementation of the directive to reduce the
incidence of such disputes in fruit management. These disputes also
should decline as participants in contract negotiations become more
sophisticated about prices and markets, although the problem will
remain salient so long as the PRC continues to maintain an economy
in which many prices are still not allowed to fluctuate in response to
market conditions.

4. Triangular Debts

"Triangular debts" or "debt claims" ("san jiao zha"'), by contrast,
represent an area of Chinese law where doctrines of excuse have not
developed. Contracts such as purchase and sales contracts differ in
terms of the parties' obligations to meet their delivery and payment
deadlines, although in at least some instances, date-of-delivery
provisions are strictly enforced.' 42 Beginning in 1988 and especially
in 1990, however, the national government tightened credit throughout
the country in order to reduce inflation and insure that state-owned
industry enjoyed priority access to bank credit. The unanticipated result
was a nationwide credit crunch in which liquidity dried up and one
enterprise after another became unable to meet its payment obligations.
The cumulative effect was to impair the ability of third-party
enterprises to meet their obligations as well, hence the term triangular
debts.

Under the circumstances, party after party faced the risk of
imminent default. Because their predicament was not attributable to a
force majeure event, a change in the state plan or interference by a
state agency, their only legal remedy was to request that the other
party agree to voluntary contract reform or rescission under Article
27(1) of the ECL.'43 Because most parties were simultaneously
victims as well as breachers and because of a general recognition that
the source of the problem was systemic, rather than the fault of the
party in breach,' parties refrained from prosecution for nonpayment.
However, some parties refused requests for voluntary reform or
rescission while insisting on performance under the original terms of
the contract. 145

142. Interview with Tian Jiaqing, Director of the Zouping County (Shandong) Forge and
Machine Works, in Dongguan Cun (Sept. 2, 1990).

143. ECL, supra note 47, art. 27(1); Yang Zhenshan, supra note 15, at 54-55.
144. Interview with Tian Jiaqing, supra note 142.
145. Yang Zhenshan, supra note 15, at 53, 55.

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The situation did not ease until the State Council took action in
March and again in July 1990. First, the State Council directed the
banks to relax credit controls, pumping an additional US$20 billion
into the economy.'6 Second, the State Council supervened contract
provisions by imposing a uniform 0.3 percent monthly interest charge
on accounts rendered delinquent by the credit crunch. This decision
protected parties in breach while they made arrangements to return to
compliance with their repayment schedules, while limiting interest
charges to the low interest rate paid by state enterprises and other
entities for subsidized loans. 47 In addition, the State Council estab-
lished a structure of "triangular debV leading small groups to take
charge of the problem and expedite its resolution?' 8 Through June
1990, some 98.4 billion RMB of such nonperforming triangular debts
were repaid or conformed to payment schedules by such means.'49

However, the problem may recur as inventories of unsold goods
accumulate in state enterprises.5

Such policy change is a cumbersome, imprecise and unreliable
remedy in an economy faced with the prospect of radical transforma-
tions and considerable macroeconomic instability. At least one Chinese
commentator has recommended that the ECL be revised to provide
courts with the equitable power to reform or rescind contracts under
the doctrine of rebus sic stantibus or "changed circumstances" in the
event of fundamental change in a contract's background or social
environment. The doctrine would be invoked so long as the change
was external to the parties; arose during the term of the contract rather
than in the pre- or post-contractual period; was unforeseeable,
unavoidable and insurmountable; and resulted in manifest inequity,
such as a major change in the allocation of the costs and benefits of
the contractual relationship."' This proposal is oriented primarily
toward complex, long-term contracts, especially those involving a high
quotient of science and technology content2 While this proposal

146. Guowuyuan Guanyu Zai Quanguo Fanwei Nei Kaizhan Qingli "San Jizo Zhai"
Gongzuo de Tongzhi (State Council Directive on Beginning the Work of Cleaning Up
"Triangular Debts" Throughout the Country) (Issued May 26, 1990), 1990 GUOWUYUAN
GONGBAO 265; see also LI Peng on Current Economic Issues (Aug. 2, 1990), excerpted in
BEmG REv., Oct. 29, 1990, at 16.

147. Id.
148. Id.
149. BBC Summary of World Broadcasts FEI0317 (1990).
150. Kaye, Fndts of Success, FAR E. ECON. REV., Sept. 26, 1991, at 62.
151. Yang Zhenshan, supra note 15, at 59.
152. Id. at 56.

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recognizes the need to adopt more flexible doctrines of excuse, its
adoption depends upon an expansion in the power of the judiciary to
act even in the absence of a state policy directive. Moreover, this
proposal does not allow for the capability of parties in the future to
allocate the risk of price fluctuations through price adjustment
provisions, hedging and other contractual and non-contractual strategies
as these become available in the PRC. 5 3 Great care would have to
be taken less the sanctity of contracts be unduly impaired. 154

Judges themselves are reluctant to try breach of contract cases
where the cause of action arises in a general price rise that was
unforeseeable in the old stable price environment. 55 In such cases,
the parties are urged to voluntarily reform or rescind their contracts in
accordance with the facts, reason and the law. 56 Nevertheless,
stronger legislative authority, like that encountered in the fruit orchard
cases, is needed for the courts to order contracts reformed or
rescinded. 157

Alternatively, the refusal of Chinese courts to accept broader
doctrines of excuse will lead foreign and perhaps even domestic
suppliers in such contracts to raise their prices in return for assuming
what are perceived to be one-sided and intolerable risks. However, this
does not exclude reform or rescission in response to other causes.
Indeed, the PRC has intervened on several occasions to prevent the
embarrassing collapse of joint ventures in the months following the
Tiananmen Incident. 58

V. CONCLUSION

There are many questions about excuse in Chinese contract law
that remain unclear. 159 For example, there is little authority interpret-

153. Zou Yi & Xu Jinlin, supra note 15 (noting that open-price provisions in contracts
are becoming more common, a trend which the authors criticize as merely postponing the
emergence of disputes).

154. But see Yang Zhenshan, supra note 15, at 56 (evincing criticism of an overly rigid
adherence to the sanctity of contracts).

155. Zou Yi & Xu Jinlin, supra note 15.
156. Interview with Zhao Lianting, supra note 131.
157. Zou Yi & Xu Jinlin, supra note 15 (advocating amendment of the ECL to respond

to fluctuations in floating or market-based prices, to parallel Article 17(3), which provides for
changes in fixed prices).

158. See, e.g., Bank of China to Help Ailing JVs, FAR E. ECON. REV., Nov. 30, 1989,
at 95.

159. For an analysis of dispute resolution involving rural contracts, see Ross, supra note
127, at 15.

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ing the distinction between unforeseeability and conscious omission as
those concepts concern contingencies that are not mentioned in the
language of the contract The impracticability doctrine has yet to be
addressed. The power of the courts to rule under present statutory
authority in the absence of a governmental directive is doubtful.
Moreover, the Chinese procedural requirement for certification of force
majeure events presents potential obstacles to the invocation of a force
majeure defense.

On the other hand, there are a number of provisions of Chinese
law that either expressly or potentially broaden the grounds for
invoking a defense based on force majeure or another doctrine of
excuse. Moreover, international law and the law of other foreign
jurisdictions is evolving in favor of a broadening of force majeure and
related doctrines. Although such developments, with the exception of
CISG and other international conventions to which the PRC is a party,
lack authority in the PRC, Chinese courts may very well be influenced
by such developments, at least to fill gaps in Chinese law. Indeed, the
FECL expressly allows ["keyP' ("may")] the application of international
practice in matters where the PRC has no law:

Article 5 .... On matters for which the law of the People's
Republic of China has not yet made provisions, international
practice may be applied.' 60

It is incumbent on any party to a Chinese contract to carefully
consider its interests when negotiating an excuse or force majeure
clause. Risks should be expressly allocated as intended. All categories
of events intended for force majeure status, including civil distur-
bances, that the clause is intended to encompass should be so
designated. Conversely, all other events should be made ineligible by
express exclusion or cancellation of the implicature. If certification is
required, the procedural requirements should be clarified to stipulate
the rights of the parties to receive notice and to participate in the
investigation by the certifying agency. If certification of events
occurring outside of China is impossible or undesirable, then a simpler
notice and evidence procedure should be expressly substituted for
certification. To mitigate the effects of legislative or regulatory changes
on pricing and other issues affecting performance, the parties at a
minimum should include a stabilization clause requiring renegotiation

160. FECL, supra note 39, art 5.

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if supervening legislation or policies affect the economic returns
anticipated by either party."' The parties also may incorporate
impracticability language into the contract. All parties must remember,
however, that such contract language generally is subject to symmetri-
cal application, and thus, can be invoked by either party.

161. Lubman, Law and Practice, the Contract, and Patents in U.S.-CtNA TRADE:
PROBLEMS AND PRospECtS 93, 101. Articles 40 and 41 of the FECL also offer foreign investors
conditional protection against subsequent legislation affecting contracts. As Cohen has noted,
however, the comfort provided by these articles is substantially qualified by the use of
permissive "keyl" ("may") language, rather than directory language which would allow less
latitude for superseding contract language. See J. COHEN, supra note 14, at 21-22.

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