COVID-19—Impact on Taiwanese law governed Commercial Contracts and Lessons Learned from the SARS Epidemic

This article aims to provide a brief review on the impact of the outbreak of COVID-19 on contractual relationships from the perspective of Taiwanese law with precedents during the SARS epidemic for a better understanding on the legal practice in Taiwan.

Force Majeure
There are certain chapters under the Civil Code that rule “force majeure” as a ground for the parties to be exempted from their contractual liabilities. For instance, where a carrier can prove that the delay in the delivery of the goods is the result of a force majeure event, he/she would be discharged from the liability for compensation. However, what situation can be deemed as the force majeure, is arguable among the parties as their interests are contradictory.

Whether the outbreak of the COVID-19 can be deemed as the force majeure should, in principle, be decided on a case-by-case basis. For example, during the SARS epidemic, the court ruled that since the hospital failed to provide adequate personal protective equipment to a contractor; the contractor was not held liable for the delay in performance. On the other hand, the court considered a seller shall be liable for failing to deliver thermometers to a buyer during the SARS epidemic. In the court’s reasoning, the seller’s defense based on the impossibility to perform is rejected because: (1) the sales agreement was made after the outbreak of SARS and (2) the seller only tried to purchase the thermometers from one supplier and did not explore the other sources.

In principle, the COVID-19 itself is not sufficient to be the excusable reason for the inability or delay to perform. The party who wishes to rely on such defense has to establish a “direct” causation link between the COVID-19 and the impossibility or delay of performance. Furthermore, the standard of the duty of care for the ordinary people in the same or similar field of business might be also used by the court in its evaluation of influence resulting from the COVID-19.

Changed Circumstances in Contracts
The doctrine of change of circumstances under Article 227-2 of the Civil Code may also come into play during the time of a pandemic like COVID-19. Under the Civil Code, where there is a change of circumstances after the constitution of the contract, which is unforeseeable when signing the contact 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. For instance, in the above case, although the court does not consider the SARS epidemic can excuse the seller from its obligation to deliver the thermometers. The SARS epidemic does; however, beyond the original expectation, greatly increase the market demand for thermometers and therefore it became quite difficult for the seller to obtain the sufficient thermometers from other suppliers even if the seller would exhaust every resource. Accordingly, the court at the end adjusted original effect of the breach of contract ruled by the contract and reduce the compensation.

If the parties cannot agree on whether there is a change of circumstances and/or what would be the fair adjustment for their contractual obligations due to such unforeseeable event, the party who wishes to adjust the terms of the contract would have to seek for the assistance from a court. Although there is no law setting the prescription period for exercising the right arising from the changes of circumstance under Article 227-2, some judgments from the Supreme Court do suggest that there might be a 2-year time limit if the claim is under the construction contract (That is, the same period as the statute of limitation under the original contract mutatis mutandis).

Conclusion
It is still unclear how the contractual relationships would be affected by the outbreak of the coronavirus. Nevertheless, the precedents rendered during the SARS epidemic may offer some hints and help the parties to evaluate the options they may seek for under the law of Taiwan.