With worrying news about the spread of the coronavirus in China and beyond, businesses need to consider the impact on their supply lines and take steps to protect themselves.
As a result of the lockdown in China, some factories are being shut down with no certainty on when things might get back to normal. This could lead to delays in production and shipment and disruption to supply lines with the result that customers of the factories cannot fulfil their own obligations leading to claims for loss and delay.
It is sensible therefore to check supply line exposure that your business might have and take preventative steps. Often a contract will have a force majeure clause, which is intended to protect a party that cannot perform its obligations due to circumstances beyond its control. Such clauses vary in their terms but they should be checked as many would cover a factory shutdown. They work so as to suspend obligations for the duration of the force majeure event.
Simply having the force majeure term in a contract is not enough. It will normally only be effective once notice has been served in accordance with the terms of the contract on the counterparty. All too often parties fail to serve notice that the force majeure event is in operation and in doing so can lose the benefit of the clause. Businesses should check their contract terms now and take advice if necessary to make sure they protect themselves.
Michael Frisby