Dunnington Bartholow & Miller LLP
Risk Assessment:
Supply Chain Disruptions and the Coronavirus Outbreak
Donna Frosco, Partner
February 5, 2020
As widely reported, the coronavirus outbreak in China has led to extension of the Lunar New Year holiday and restrictions on movement of people by the Chinese government, including in manufacturing centers. With no end date on the horizon and as international travel restrictions from and to China by many countries mount, there are likely to be international supply chain impacts. In fact, it is reported that the China Council for Promotion of International Trade already is, or will be, offering “force majeure certificates” to Chinese companies impacted by the coronavirus outbreak and subsequent restrictions. (See, https://uk.reuters.com/article/uk-china-health-trade/china-trade-agency-to-offer-firms-force-majeure-certificates-amid-coronavirus-outbreak-idUKKBN1ZU05V.)
Parties may wish to proactively audit their critical supply chain and customer agreements to evaluate rights and obligations in the likely event of impact. Each circumstance will be unique.* However, general considerations/actions include:
- Noting contract provisions defining events of default.
- Determining whether written agreements contain force majeure provisions. If so, key points on which to focus include notice requirements (i.e., time, method of delivery and content of required notices) and possible termination rights.
- If a need to declare a force majeure event is anticipated, assessing facts and circumstances of the event (e.g., specific supply chain components impacted, facilities impacted, availability of alternative facilities or and/or shipping methods).
- If a force majeure declaration is received from a manufacturer or supplier, assessing not only rights vis-à-vis the declaring party, but also whether receipt of the notice will trigger the necessity for a party to provide its own declaration to customers.
- In the absence of written agreements or force majeure provisions, parties may wish to conduct risk assessments, explore potentially applicable legal precedents and formulate strategies for productive communications with customers and downstream parties.
Again, one size does not fit all, and specific circumstances will differ.* However, proactive review and planning now may help lessen potential impacts on contractual agreements and minimize disputes and related costs later.
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*Required Disclaimer: This alert is provided for informational purposes and does not constitute, and should not be considered legal advice. Specific facts and circumstances will differ. Neither the transmission nor the receipt of this information shall create an attorney-client relationship between the transmitter and the recipient. You should not take, or refrain from taking, any action based upon information contained in this alert without consulting legal counsel of your own choosing. Under applicable professional rules of conduct, this informational publication may be considered attorney advertising.
