There is understandable concern internationally about the spread of the coronavirus. Primary concerns must always be for the health and welfare of those affected both directly and indirectly by the virus and how to control the virus so that more lives are not affected.
The social and economic impact of major Chinese cities on lockdown and restricted travel remains difficult to gauge. For businesses based in China it is an uncertain time. Contracts are inevitably being interrupted, retailers are being hit hard, ship calls at major Chinese ports are significantly reduced, and restrictions imposed are impacting upon industrial activity too.
Things will get better but what can be done in the meantime to limit the damage?
There are steps that businesses can take to limit economic damage depending on the contractual rights and obligations in place. For contracts governed by English law, this will require consideration of the force majeure clause, if any, as well as business continuity and/or disaster recover obligations.
It has been reported that many businesses are seeking to rely on force majeure provisions. A force majeure event is one that is unforeseeable and unavoidable, not the result of either parties' actions, and makes it impossible for a party to perform a contract. The clause allows that party to declare force majeure and be relieved from performing its obligations.
Natural disasters, wars, riots, revolutions, explosions, strikes, and government actions can all be force majeure events.
- Whether or not the outbreak of coronavirus is covered will depend upon the wording of the clause.
- The other contracting party may resist force majeure and there may be resulting litigation.
- From a commercial perspective reliance on force majeure may impact upon future business relations.
- It is important to consider how a force majeure clause might interact with any business continuity and disaster recovery provisions.
- It is important to check contractual notice requirements to protect against a technical challenge.
- Where there is no force majeure clause, it may be possible in English law to argue frustration which could result in the contract being discharged and the parties released from future obligations.