Coronavirus and its impact on the Supply Chain
With over 7,700 cases of the Coronavirus confirmed by Chinese health authorities at the end of January, quarantine areas being put in place, and borders being closed, the social and humanitarian implications of the outbreak are, rightfully, to the front of the world’s thinking. However, with the focus of the outbreak being one of the world’s largest manufacturing territories, there will certainly be secondary concerns relating to its impact on supply chains and the ability of businesses to meet their own performance obligations. In this regard, increasing attention is being directed to the relevance and application of ‘force majeure’ clauses in business contracts.
At its simplest, a force majeure clause is intended to absolve a party to a contract from a failure to perform based upon unavoidable catastrophes that interrupt the expected course of events. While an ‘Act of God’ will be designed to excuse issues arising from earthquakes, storms, floods, volcanic eruption etc, ‘Force majeure’ tends to relate to acts of a more human origin, such as declarations of war, imposition of martial law, closing of borders etc.
In this regard, the Chinese Government’s imposition of a quarantine area and forced factory closures may certainly appear to meet the force majeure criteria. That said, there is credible legal opinion that suggests that force majeure clauses will need to specifically reference ‘epidemics’, ‘health emergencies’, and similar, in order to apply.
In any event, if you are a business that’s supply obligations may be impacted by the outbreak, you should be discussing your position with your professional legal advisors and to communicate quickly and clearly with your trading partners to ensure that relationships are maintained and your position is treated sympathetically.
Naturally, NCI are here to assist with queries you may hold relating to export trade and your policy obligations.
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