Home >> News & Publications >> Newsletter



  • 年度搜尋:
  • 專業領域:
  • 時間區間:
  • 關鍵字:

Lessons Learned from SARS—Brief of Impact on Contracts Governed under the Law of Taiwan due to the Coronavirus

Daniel T. H. Tsai/Wanching Chen

The coronavirus has become a global pandemic and every government is taking measures to combat the disease. It is inevitable that all works of life would be affected to certain degree. If the outbreak of the coronavirus would become an obstacle for the performance of contract, is it possible for the parties to seek for remedies under the law? Since Taiwan once suffered from the Severe Acute Respiratory Syndrome (SARS) in 2003, this article aims to analyze the relevant judgements of SARS and find out the court's attitude towards "the impact of the notifiable disease on the performance of contract" and serve as a guideline for the handling of similar issues in the future.
Possible Excuse 1: Force Majeure
There are certain chapters under the Civil Code of Taiwan that rule "force majeure" as a ground for the parties to be exempted from their contractual liabilities. For example, Article 634 of the Civil Code provides "the carrier shall be liable for any loss, damage or delay in the delivery of the goods entrusted to him." with a proviso that "the loss, damage or delay is not due to force majeure, the nature of the goods, or the negligence of the sender or of the consignee." Paragraph 2, Article 508 of the Civil Code also states that "the undertaker is not responsible for loss or destruction of materials provided by the proprietor resulting from a force majeure event." However, there is no definition of "force majeure" under the Civil Code. What is "force majeure"? What circumstances would be considered as a "force majeure event"? Since the interests of the parties to a contract are usually on the opposite sides, the disputes therefore arise.
Due to the difference of contact nature and the terms and conditions thereunder, whether the outbreak of the coronavirus can be deemed as a "force majeure" event should, in principle, be decided on a case-by-case basis. Take the Taiwan High Court 93th Year Shang-Yi-Tz No. 419 Judgement (臺灣高等法院93年度上易字第419號民事判決) for instance. The background of the case is as follows: the appellant and the appellee entered into a light-current system and pipeline maintenance contract. However, the SARS outbreak occurred during the performance period and the staffs of the appellee refused to provide service due to insufficient measures taken by the appellant, which in turn resulted in the appellee's failure to dispatch the agreed number of personnel on site. The appellant then claimed for punitive damage against the appellee in accordance with the contract at dispute. The judge of this case rules that "…considering the SARS epidemic and that it is announced as a notifiable disease by the government, it should be deemed that the failure of the performance of the contract is as a result of "plague", stated under item 5, Paragraph 2, Article 12 of the contract. The staffs of the appellee quit the jobs due to the SARS epidemic and therefore the number of the maintenance personnel on site is insufficient on 1 May, 2 May, 5 May to 9 May, 12 May and 13 May 2003. None of the parties is imputable for such circumstances. The parties do not dispute on the fact that the appellee notified such situation to the appellant and requested for an extension of the performance period with a written notice on 5 June 2013, but such request was refused by the appellant. However, the outbreak of the SARS epidemic was unexpected and the situation was urgent, the appellant's refusal of an extension is against the principle of good faith. Accordingly, the appellee's claim against the appellant for the return of the penalty in the amount of NT575,506 should be granted."
On the other hand, in the Taiwan High Court 96th Year Kuo-Mao-Shang-Tz No. 6 Judgement (臺灣高等法院93年度國貿上字第6號民事判決), the judge rules that, the appellant and the appellee entered into the purchase agreement of ear thermometers after the SARS epidemic; therefore, the appellant should have known the difficulty to obtain the ear thermometers. Nevertheless, the appellant still signed the agreement with the appellee in order to make a profit. In addition, the appellant only approached one manufacturer and failed to recourse to others to obtain the supply. The appellant did not exercise his duty of care as a seller and thus he is attributable for the non-performance of the agreement. The judge then concluded that the appellant should not be released from his contractual liabilities for compensation despite of the SARS epidemic.
From the above judgements, it is seems that the court would not excuse the parties for their inability or delay to perform simply due to the outbreak of the coronavirus. In other words, the party who wishes to rely on such defense might have to establish a direct causation link between the coronavirus outbreak and the impossibility or delay of performance. Besides, when determining whether the performance of the contract is affected by coronavirus and whether a party should be held liable under the contract, it seems that the court would use the standard of the duty of care for the ordinary people in the same or similar field of business.
Possible Excuse 2: Change of Circumstances
The doctrine of change of circumstances may also come into play. Paragraph 1, Article 227-2 of the Civil Code provides that, "where there is change of circumstances unforeseeable at the signing of the contract, and the performance of the original obligation becomes obviously unfair to a party, such party may apply to the court for the change or adjustment of the original obligation or effect." Take the Taiwan High Court 96th Year Kuo-Mao-Shang-Tz No. 6 Judgement (臺灣高等法院93年度國貿上字第6號民事判決) for example. The court considers that the appellant's claim of non-imputable for the impossibility to deliver the ear thermometers cannot be sustained. The SARS epidemic did; however, greatly increase the market demand for the ear thermometers beyond the original expectation and therefore it became difficult for the appellant to obtain the subjects. Accordingly, the court adjusted the original effect of the penalty clause in the contract and reduced the compensation amount that should be paid to the appellee.
If the parties cannot agree on whether there is a change of circumstances or what would be the fair adjustment to the original contract, the party who wishes to adjust the terms of the contract would have to recourse to the court. Under such circumstances, although there is no law setting out the prescription for the exercise of the right under Article 227-2 of the Civil Code, i.e. the doctrine of change of circumstances, the recent judgements seems to consider that application of change of circumstances is an exceptional remedy and in order to avoid the uncertain contractual relationships of the parties, the prescription period should be decided, mutatis mutandis, in accordance with the statute of limitation under the original contract.
It is still uncertain how and to what extent would the contractual relationships be affected by the coronavirus. However, from the above analysis of the precedents rendered during the SARS epidemic, this brief may help the parties to have a preliminary understanding on the possible situation that they may face with under the law of Taiwan and thus figure out how to handle the relevant matters.