COVID-19 – Do your contractual clauses guarantee the safe conduct of business?

While no one can predict the extent, spread, duration or ultimate human toll, the impact of the SARS-Cov-2 coronavirus causing the disease COVID-19 on Asian and international supply chains is unprecedented. At the same time, it is uncertain whether the economic difficulties will subside in the coming weeks (we hope they will) and whether the consequences will reverberate on global trade in the coming months or years.

If your supply chain depends on imports from Asia, or if you are part of a larger supply chain linked to Asia, the current global situation may indicate a force majeure event. There is no need to explain to anyone that force majeure may worsen the situation of people dependent on a previously perfectly functioning international supply chain. Unfortunately, no contract clause receives more neglect than force majeure provisions. An epidemic, pandemic, infectious disease, quarantine etc. are of course included in what we mean by force majeure - but such events can only have legal significance if they are specifically mentioned in the relevant part of the contract. Below are some tips that will help your company minimize losses related to force majeure

Firstly - if you do not update your contractual provisions and the processes of concluding them on an ongoing basis (i.e. if the process of concluding a contract usually follows the pattern "let's take the last concluded contract and adapt it to the current state"), and thus repeats previous errors and does not take into account emerging problems, now is the perfect time to contact IPSO LEGAL - our experienced international trade lawyers will help you find the right solution. We understand your business. We cooperate with experienced lawyers in trade, corporate law, litigation and arbitration in dozens of countries in various parts of the world.

Secondly, when it comes to the force majeure clause, you cannot rely on how the language of the contractor's country interprets it. If a common (common in the contractor's country) disease and the resulting quarantine may disrupt your supply chain, you must provide specific and equivalent language in your contracts for the interpretation of the force majeure clause with the language of the country to which you deliver or receive goods or services. However, when a contractor intends to negotiate a force majeure clause, keep in mind recent events and a possible pandemic - you can imagine the quarantine of large cities, the closure of popular transit routes and other activities that will become part of everyday business. Does your supply chain take into account the occurrence of coronavirus or other diseases?

Third , if your contractor insists on adding a force majeure clause to your current contracts, include a requirement to provide written (or e-mail) notice of any disruptions. Such notification should be provided immediately after the disruption occurs, updated immediately (even in real time), and the contractor should provide constant contact and the necessary assistance to the extent necessary from the point of view of your business. In a similar manner (i.e. before a force majeure clause becomes necessary), the remaining contract provisions must be updated immediately. Can they be used if necessary?

Fourth - if you want to use a strong force majeure clause now or in the future, consider carefully reviewing the contract templates you use and include a bilingual version of the contract and use the example provision: "in the event of any inconsistency between the version in .... and the version in Polish will prevail over the version in Polish” in the templates. If you do not have the appropriate contract templates, please contact us.

Fifth - regardless of which side of the contract you are on, do not let the court decide how to mitigate the effects of force majeure. It's worth having a few emergency solutions. Alternative suppliers outside the epidemic zone at a reasonable price? Coverage of all costs by the contractor? Covering the costs of alternative suppliers? Inventory allocation? (above all, as in all other contracts, try to avoid "best efforts" provisions). As with all crises, take this opportunity to learn what you need to do now with respect to existing contracts, as well as what you need to do going forward to improve your contract drafting process, mitigate risk, price the risk you are actually taking or transfer of risk to third parties.

Finally, check your insurance, talk to your broker, and then check your insurance again. Customers are often surprised that the General Terms and Conditions of Insurance do not cover the situations they thought they covered.

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