Quick read

Coronavirus: are the associated travel restrictions impacting your supply chain?

Article by

The disruption associated with the coronavirus may affect the import and export of goods and components to and from China and the Far East. It may be that there is nothing that businesses can do, operationally, to work around a difficult situation, not of their making, but contractually the inability to source components and the restrictions on the movement of goods in that part of the world may give rise to contractual liability.

Many contracts will include force majeure clauses. A force majeure clause typically serves to excuse non-performance for reasons outside of a contracting party’s control, such as a pandemic and related governmental action. However, excusing liability does not help cure the root cause of the problem.

Moreover, in a chain of contracts, the application of the force majeure provisions in a contract for the importation of components from China might not be replicated in a back to back contract whereby the products into which such components will be placed are sold to a UK based buyer. Is there a symmetrical mirroring of the contractual clauses in both contracts? This may be unlikely. Yet, even if there are force majeure provisions in all of the agreements in a contractual chain, the implementation of those clauses may be different. A Chinese supplier who is restricted by the Chinese government from exporting to the UK might be excused liability under the force majeure clause, but can the UK importer rely on a force majeure clause in a contract with its customers? The pandemic may be a matter outside of the importer’s control, but is the pandemic preventing the importer from meeting its contractual obligations? Can components be sourced (possibly at a higher price) from alternative suppliers?

It is not a foregone conclusion that all force majeure provisions in a chain of contracts will pass excused liability along the contractual chain like a baton.

Our advice

So, if your supply chain is impacted by the situation in the Far East it makes sense to review your force majeure protection to make sure that:

  • it's there; and
  • it will work to save you from contractual claims.