Impact of the Covid19 virus outbreak on international trade

 

Since the novel coronavirus was first detected in Wuhan, China in December 2019, the outbreak of the virus has spread rapidly across the globe. At present, there have been more than 90.000 reported cases in almost 70 countries, including China, South Korea, Iran and Italy as the worst-hit countries. In the short time since its outbreak, the spread of the coronavirus has caused tragic loss of human lives and severely impacted the global economy.   

The coronavirus outbreak has resulted in sudden disruptions to global supply chains, and companies are increasingly considering whether they can declare the outbreak as force majeure. As Chinese companies have already begun to invoke force majeure, it is important for companies to carefully examine their contracts to ensure that force majeure clauses are invoked correctly.

Does the coronavirus outbreak amount to force majeure

Force majeure generally covers situations where a party is unable to perform its contractual obligations due to unforeseen and unavoidable circumstances, beyond its control. In such case, the affected party may not be liable for the delays or failure in performance resulting from the force majeure event.

Companies affected by the outbreak should consider whether their contracts include a force majeure clause, and if so, whether the coronavirus outbreak falls within its scope. It should be noted, while force majeure is a common legal concept in civil law systems, there is no equivalent legal concept under common law, such as English law. It is therefore necessary to determine whether there is a force majeure clause in such contracts, and if so, the type of events it applies to. Before relying on a force majeure clause, the specific wording of the clause should be carefully examined. For example, not all force majeure clauses cover epidemics, such as the coronavirus outbreak. Prevention due to government actions, such as quarantines and closure of ports may be covered, while circumstances resulting from acts of private parties, such as cancellations by carriers, may not always be covered. Furthermore, aside from the specific wording of a force majeure clause, consideration should be given to the law applicable to the contract, as interpretations of force majeure may vary depending on the relevant jurisdiction.

If a force majeure clause indeed is applicable, then the effects of revoking it should also be closely considered. While some force majeure clauses have the effect of suspending performance for a period, others may instead result in the termination of the contract. It is therefore important to closely consider the scope and effects of a force majeure clause before invoking it.

Other legal issues arising from the coronavirus outbreak

The coronavirus outbreak has also given rise to additional legal issues for companies involved in international trade and transport.

The outbreak has had immediate impact on the shipping and aviation industry, with cancellations, delays, quarantines and restrictions affecting air- and seaports. In addition to a general force majeure clause, it may also be necessary to consider other clauses in charter parties and contracts of carriage in order to determine the rights and obligations of the parties involved.

In addition, companies may also need to consider the impact on their own supply contracts, financing agreements, insurance and other contractual arrangements before invoking force majeure or if met with a force majeure declaration themselves.

Final remarks

As the rapid, global spread of the coronavirus continues, companies involved or affected by international trade should prepare for the impact it will have on their business, including disruptions in supply chains, logistics, financing and insurance.

Companies are advised to manage their risks by reviewing existing contracts in order to determine their rights, obligations and possible liabilities, include adequate force majeure clauses in existing and new contracts, and draw up effective contingency plans.

For more information on this, please contact our International Trade and Logistics team.