Authors: Kate Hanson, Ted Williams
On 27 February, the Prime Minister Scott Morrison announced a Coronavirus Emergency Response Plan, “getting out well ahead of the World Health Organization”, in preparing for a global pandemic. Recent events gives rise to the question, how may parties be legally be exposed or protected where supply chains are interrupted by global crises? Force majeure provisions can relieve performance obligations for events beyond the reasonable control of contracting parties.
COVID-2019 continues to spread rapidly around the globe. Governments world-wide continue to implement travel bans and trade restrictions. The Australian government has warned that a pandemic is imminent. In China, epicentre of the crisis and the world’s manufacturing powerhouse, many businesses and factories have closed. The Economist quotes predictions that Chinese manufacturing production may reach only 60% to 80% of normal production levels by the end of February 2020 leaving a dire impact on the global economy.
This has critical implications on business, both international or domestic. Due to the globalised nature of business, companies rely heavily on the operation of global supply chains in making their own contractual supply commitments. The Australian construction industry, for instance, relies heavily on the import of materials and components from China and other countries. The disruptions to business and manufacturing in China and around the world therefore pose a major risk to the industry.
Despite the significant effects that the coronavirus has already had world-wide and the various actions already taken by governments in response to the crisis, the World Health Organisation is yet to declare a pandemic. However, on 28 February 2020, the World Health Organisation raised to the global risk of an outbreak of the life threatening coronavirus to ‘very high’, the highest level in its assessment system. The declaration or otherwise of a pandemic can have significant implications in considering contract protections.
Force majeure is a legal construct designed to provide relief to parties affected by an unavoidable or unforeseeable event. However the application, operation and meaning of force majeure are far from being universal concepts. The concept operates differently across jurisdictions and, in Australia, from contract to contract. Whereas some “civil code” legal systems (including China’s) operate to broadly apply principles like force majeure, irrespective of private contract agreements, in “common law” jurisdictions such as Australia, force majeure relief is solely a creature of contract and therefore, will only apply to the extent agreed in the terms of a contract.