The Impact Of The Novel Coronavirus On The Construction Sector

Author:Ms Jun Wei, Liang Xu, Michael Zou, Roy G. Zou, Timothy Hill, Stephanie Sun, Nigel Sharman and Christina Zhu
Profession:Hogan Lovells

As of 19 February 2020, the novel coronavirus (2019-nCoV, the "Coronavirus") has affected 28 countries and regions according to publicly available information. As an emergency response to the outbreak of the Coronavirus, Chinese national and local regulators have adopted various measures to minimize and control the movement of persons to prevent the further spread of the epidemic but these measures have caused the suspension of work across large swathes of the economy.

The stoppage is likely to be particularly acute in the construction and infrastructure sectors, which normally mobilise large quantities of labour. As a consequence, Chinese contractors are already becoming less competitive in the market with concerns increasing as to their capability and capacity to undertake international projects.

Whether the outbreak of the Coronavirus amounts to an event of force majeure or change of circumstance under the common law and the PRC law (such that a contracting party may avoid liability in respect of the performance of its obligations), may be informed by the regulations and court decisions promulgated around the time of the Severe Acute Respiratory Syndrome, or ("SARS"). In this note, we will also discuss the impact of the Coronavirus for both overseas and domestic construction projects, as well as recommendations for contractors involved in those projects.

We look at two possible claims arising out of the outbreak: the first for 'force majeure' and the second for 'change of circumstance' under PRC law.

The Coronavirus may constitute 'force majeure' under PRC law

The "Notice of the Supreme People's Court on Conducting the Trial and Enforcement of the People's Court in the Period of the Prevention and Control of Infectious Atypical Pneumonia" (《 最高人民法院关于在防治传染性非典型肺炎期间依法做好人民法院相关审判、执行工作的通知》 (Fa [2003] No. 72, (the "Notice") may provide some guidance.

Article 3 of the Notice provides that "...disputes caused by the government and relevant departments' administrative measures to prevent the SARS epidemic that directly result in the contract being unable to be performed, or due to the impact of the SARS epidemic, the parties to the contract being unable to perform at all, should be dealt properly in accordance with the provisions of Articles 117 and 118 of the 'Contract Law.'" (provisions that deal with force majeure). Although this regulation has now expired, since the epidemic prevention and control measures taken by Chinese regulators due to...

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