Could the threat of coronavirus become a force majeure argument in business relationships, which would essentially disrupt business economic relations? Businesses should look for the answers to this question already.
The biggest risk is for exporters and importers
Several Lithuanian companies working directly with China have already received warnings that their orders may be delayed. Risks also arise for companies, which do not work with partners in this country, but whose clients or suppliers have business ties with China.
Export or import oriented business owners in this situation must review contracts with other companies, find out which of them work with Chinese companies and are reliant on them in terms of supply and other aspects. If there is a risk of supply chain disruption, alternatives should already be sought. Also, it is advised to remain in constant communication with partners, particularly those that are based in China.
Force majeure precedents exist already
There It is very likely that Chinese companies will cease upholding their commitments as per the argument of force majeure.
Such cases already exist – for example, the largest Chinese liquefied natural gas buyer China National Offshore Oil Corp has announced that due to force majeure circumstances related to the coronavirus, they will not be able to uphold specific contracts.
Therefore, it is already useful for company in-house lawyers to analyse the contracts and check if there is a case of force majeure, also to review the law of the country where the contracts were made.
According to the Civil Code of the Republic of Lithuania for a force majeure case to be identified, four conditions are required: the circumstance did not exist at the time the contract was concluded and its occurrence could not have been reasonably predicted; due to the circumstance, the contract cannot be upheld objectively; the party failing to fullfil the contract, could not control or prevent the circumstance from happening ; the party had not taken on responsibility for the risk of the circumstance and its consequences.
Also, the force majeure case is applied only when the company unable to uphold its commitments informs its partners of the circumstance and its capacities to uphold its obligations. Otherwise the courts may not release from upholding the commitment.
Government institution influence
As per a Lithuanian Government’s decision from 1996, rules were set for release from commitment under force majeure circumstances. Of the six points found in these, two may apply in the coronavirus case: legal or illegal state institution actions and other cases of force majeure.
The coronavirus itself might not have an impact on the upholding of the contract to the point where it can be recognised as a force majeure. However, the actions and decisions of state institutions (in this case – China's) related to the infection may be assessed as a force majeure.
SARS landed under the umbrella of force majeure
If contracts were made with Chinese partners as per Chinese law, then precedents may be invoked.
Courts have ruled in China that the severe acute respiratory syndrome (SARS) virus, which appeared in the country in 2003, created force majeure conditions. Thus parties do not answer for losses experienced over this period. A similar interpretation can be expected if cases are adjudicated in China in the case of the coronavirus as well.
Therefore, it is advisable for Lithuanian companies, particularly those working not only in domestic markets, to carefully check their contracts, review their supply chains and identify potential problems.
