The coronavirus, pretext for declarations of force majeure in China?

Audio 02:00

By: Claire Fages Follow

The big importers of natural gas or copper in China declare themselves in a state of force majeure because of the coronavirus. Disputes are likely to multiply with their suppliers.

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Can the coronavirus justify a Chinese company declaring itself in a state of force majeure to evade its contractual obligations? This is not the opinion of the French oil giant. Total has for the first time rejected a statement to this effect. It came from one of its main buyers of liquefied natural gas in China. Without specifying its name - it could be CNOOC: the largest Chinese importer of LNG has declared itself in a state of force majeure with at least three suppliers -, Total denounces “the temptation of certain long-term customers to 'use the coronavirus' and 'play with the concept of force majeure', to avoid paying for cargoes that have become twice as expensive as the spot market!

Precedents in Libya, Nigeria, Australia

The "force majeure" clause - the word is used in French in contracts written in English - is contained in all import-export contracts for raw materials. It allows a buyer or supplier subject to exceptional hazards - riots, war, explosion, strike, government measures or natural disasters, not to be legally prosecuted if he fails to honor his commitments.

Illness is not expected

One of the last cases of force majeure was declared by the Libyan national oil company, the NOC, when General Haftar's troops paralyzed the export terminals and cut the pipeline from the largest Libyan deposit: the NOC could not no longer deliver to its customers.

The clause has often been used by foreign companies in Nigeria, after sabotage in the Delta, or by Australian mining companies, after floods of deposits.

The slowdown in activity is not a reason

But a disease is very rarely invoked, and this case is almost never provided for in contracts. The coronavirus that rages in China has certainly forced the authorities to increase quarantines, it has disrupted the logistical organization of Chinese industry. But importers will have to prove that they cannot actually accept cargo at the port.

Force majeure cannot be declared solely because the company is witnessing a slowdown in activity, or because it has increasing inventories, reasons cited by the largest Chinese copper refiner Nanguo to refuse deliveries of concentrate of copper.

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• Trade and Exchanges
• coronavirus
• China

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