The Impact of the Coronavirus on Business and the Potential Legal Ramifications

Force-majeure

As healthcare workers and scientists rush to develop effective treatments and a cure for the coronavirus, businesses are feeling substantial economic impact as travel, production, and supply chains are disrupted by the onslaught of the virus. Under such circumstances, companies may find themselves on the receiving end of force majeure claims or contemplating their use.

A Force Majeure clause is a contract provision that allows a party to suspend or terminate the performance of its obligations when certain circumstances arise which are beyond their control. Whether the coronavirus will be considered a “force majeure” event is dependent on the wording in the parties’ contract or the interpretation of the provision within the contract.

With the halting of production, customers and suppliers alike find themselves in the middle of a difficult and precarious situation. A considerable number of businesses in the People’s Republic of China are not able to perform their contractual obligations under current circumstances. Is this failure to perform under the contract a “breach of contract” or may this failure to perform be exempted as a force majeure event? Ultimately it is up to the party claiming “force majeure” to prove that the coronavirus is contemplated by the contract and that the non-performance was a result of the coronavirus outbreak.

As the impact of the virus continues, businesses experiencing supply chain disruptions caused by Chinese plant closures have begun issuing force majeure certificates to their customers as they struggle to meet contractual demands. As these supply chain disruptions are likely to escalate in the coming months, businesses notified of a force majeure claim or those contemplating their issuance should review the contractual language in their supply agreements. Force Majeure clauses in supply agreements are often general in nature in that they reference “Acts of God” or “causes beyond the parties’ reasonable control.” Other clauses may specifically reference epidemics or illnesses. All parties should review the appropriate notice requirements under the contract to ensure that they are in compliance with contract terms.

Whether you are a company on the receiving end of “force majeure” claims, a company contemplating making a “force majeure” claim, or a company which finds itself in both situations, it is imperative to seek legal advice from our experienced business attorneys. Our attorneys can assist you in reviewing your contracts to see how or if “force majeure” will be a factor (used by or against you), advise you as to any time constraints to make a claim, and offer alternative solutions to performance and/or mitigation.

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