The outbreak of the Coronavirus Disease 2019 (COVID-19) has quickly become a global health emergency. It is essential for businesses to be prepared for any and all possible regulatory, commercial, and legal implications of the outbreak as the number of cases continues to increase.
Both the World Health Organization (WHO) and the Centers for Disease Control and Prevention (CDC) have released advisory information and continue to provide official updates for the public and guidance on basic preventative measures against COVID-19. Beyond the implications of the current global health crisis of humans, the coronavirus outbreak is having a serious economic impact on the global economy through both supply chains and the labor market. Restrictions in China have had serious effects on Chinese manufacturing which are likely to have a significant impact on global supply chains and the businesses and industries that rely on Chinese manufacturing.
Business are impacted in a number of ways from disruptions in operations as a result of quarantine and port checks due to cases (or suspected cases) of the coronavirus among employees returning from abroad or crew and passengers on board vessels carrying goods. Businesses must consider the contractual implications of any disruptions in operations and develop effective health and safety measures to ensure the safety of workers while developing strategies to preserve business interests and ensure business continuity. During this process it is important for businesses to be mindful of the rights of their employees and consumers.
Force Majeure’s Effects on Commercial Contracts
It is prudent for businesses to review their commercial contracts that may be impacted by this global health situation. A Force Majeure clause (French for “superior force”) is a contract provision that allows a party to suspend or terminate the performance of its obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible. When an agreement includes a force majeure clause, it usually operates to relieve one or both parties of some or all of their contractual obligations. Whether the coronavirus outbreak constitutes a force majeure event under a particular agreement will depend on the language of the agreement, the relationship between the coronavirus outbreak and the non-performance, and the applicable law.
Businesses can take several practical risk management steps to assess their rights, obligations, and remedies under their current commercial contracts and to mitigate potential disruptions in business caused by the Coronavirus outbreak including:
- Reviewing the terms of existing contracts for protection, including force majeure clauses (and amending existing contracts if possible).
- Verifying Insurance Coverage
- Including express epidemic/pandemic/infectious disease (force majeure) language in new contracts.
- Conducting risk assessments for possible future disruptions considering factors specific to customers, suppliers, working conditions, etc.
- Closely monitoring facts and breaking news through official CDC and WHO updates.
- Ensuring proper health and safety measures and providing information and education to employees.
- Reviewing the work health and safety systems and policies of suppliers, ensuring they are appropriate, or requiring suppliers to comply with company policies.
Ultimately, when an agreement contains a force majeure clause whether a party can exercise its rights under such a force majeure clause must be determined on a case-by-case basis. If an agreement does not contain a force majeure clause covering situations such as the Coronavirus (COVID-19) outbreak, the doctrine of frustration may allow the parties’ obligations under the agreement to be discharged when an unforeseen event occurs that renders the performance of the contract impossible. To determine how your business might be affected by the Coronavirus (COVID-19) outbreak and develop a unique strategy to protect your business interests, contact Xander Law Group today.