The corona virus (2019-nCoV) poses new challenges not only to medicine and politics but also to the economy. The WHO declared an "International Health Emergency" on 30 January 2020. The Chinese government has quarantined entire cities and imposed flight bans. Production has been stopped in many companies. It is not foreseeable how long delivery problems will last and what their extent will be. European companies are already beginning to feel the economic consequences, even though the peak of the pandemic is still to come. Experts estimate that the economic consequences will be far greater than during the SARS epidemic in 2003, which cost China about one percent growth in gross domestic product at that time.
Entrepreneurs are now called upon to review their supply and customer contracts in order not to miss the steps necessary in this situation and to avoid future disputes as far as possible.
Delivery commitments cannot be met because the machines in your production facilities are at a standstill: The Chinese courts and arbitration tribunals predominantly judged the SARS epidemic as force majeure. However, it is often difficult to prove that the force majeure event makes it impossible to fulfil one's own contractual obligations. The CCPIT (China Council for The Promotion of International Trade) issues "Force Majeure" certificates to companies upon request. These facilitate the proof of force majeure and lack of fault towards customers or courts, if claims for damages due to non-delivery are asserted.
Suppliers are unable to deliver due to the production stoppage in China. In view of the current situation, it is not foreseeable how long this will be the case. It is advisable to examine alternative sources of supply. First of all, companies should examine whether they can withdraw from contracts due to contractual force majeure clauses, temporary impossibility or loss of the business basis and whether this is reasonable with regard to existing customer contracts.
In the event that customers insist on receiving the products ordered from them, companies should check whether the contracts contain force majeure clauses and how long they can refuse performance. If it becomes necessary to purchase from other suppliers at higher prices, customers may be required to make price adjustments. In addition, there could be a threat of contract cancellations by customers. Entrepreneurs are currently required to arm themselves against possible claims for damages.
Taylor Wessing supports entrepreneurs in reviewing contracts and deadlines and in protecting rights vis-à-vis suppliers and customers. We create a legally secure communication with all contractual partners and take precautionary measures in the event of a dispute. We also help with the application for CCPIT certificates.