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Potential Legal Issues relating to Construction Projects/BOT Contracts due to the Outbreak of Novel Coronavirus (COVID-19)


Pauline Wang

Potential Legal Issues relating to Construction Projects/BOT Contracts due to the Outbreak of Novel Coronavirus (COVID-19)

Outbreaks of the Novel Coronavirus have been reported in many countries around the world, and the epidemic shows no signs of abating. The spread of the Novel Coronavirus not only threatens public health but may also create many legal issues. If corporations do not adopt appropriate precautions and response measures to address such potential issues, they may be facing significant impact and losses down the line. Below we highlight some key issues that corporations involving in construction projects/BOT contracts should pay special attention to during an outbreak of an epidemic.

1.           Whether the outbreak of the Novel Coronavirus constitutes a force majeure event under a public construction contract or a BOT contract

1)        According to a relevant press release issued by the Public Construction Commission ("PCC") on May 7, 2003, if the progress of a public construction project is delayed due to the implementation of epidemic-prevention measures at the construction sites or the mandatory quarantine measures with which the contractors and workers involving in the project are required to comply, the project timeline may be extended after negotiation and agreement between the project owner and the project contractor.

2)        For BOT projects, an outbreak of an epidemic may also constitute a force majeure event under any investment or superficies agreement already executed for such BOT projects; consequently, the contract terms, rental or royalties under such agreement may also be subject to adjustment.

3)        However, when determining the scope of the project that has been affected by the force majeure event, in general, the party whose performance is affected shall bear the burden to prove the existence of the force majeure event as well as the causation between such event and its delayed performance/non-performance or damage. Hence, whether the spread of the Novel Coronavirus can be considered a force majeure event is still subject to a case-by-case determination.

2.         Giving Notice in the event of Force Majeure

While the outbreak of the Novel Coronavirus may be considered a force majeure event, the timing of giving the counterparty a notice of such event is very important for the protection of a company’s rights and interests. Even if a contractor is entitled to suspend performance due to a force majeure event, such contractor may still be deemed in breach if it fails to give notice in time (i.e., perform the contractual obligation of giving notice in the event of a force majeure).

3.         A Closer Look at the Relevant Contract to Ascertain Rights

Under the Model Procurement Contract prepared by the PCC, “epidemic” is listed as one of the force majeure events. The Standard BOT Contract also specifies that a force majeure event is a legitimate ground for amending the contract. Hence, the rights and remedies that a contractor may exercise or seek due to the outbreak of the Novel Coronavirus (e.g., what loss and damage are recoverable, whether the project timeline may be extended) are all based on the applicable contract, the relevant provisions and principles under the Civil Code and the Government Procurement Act. Therefore, a thorough review of the applicable contracts and regulations will help ascertain a company’s rights under such circumstances.

Considering the magnitude of this outbreak and the potential issues arising therefrom, both the public and private sectors should put in place response measures to address and prevent potential disputes. If you have any questions on relevant legal matters, please do not hesitate to contact us. We would be happy to provide further information or arrange a forum to facilitate relevant discussions, in order to help you address any potential issues and protect your rights and interests.

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