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China Lawyer: How to Deal with the Impacts of Coronavirus on Your Contracts

Introduction


All of us are now experiencing a global disaster - coronavirus (also known as COVID-19), and seeing its impacts especially on global manufacturing, cross-border supply chains, capital flows, etc. You might have an existing contractual arrangement with a Chinese supplier now, and what you worry about most happened - the Chinese supplier regretted to tell you that it may delay performance or terminate the contract because of COVID-19; or it asserted that the outbreak constitutes a force majeure event or gives rise to another legal basis excusing non-performance under commercial contracts.



But one of the most important questions is whether this outbreak counts as a force majeure event or makes other doctrines available which allow the other party to cancel the contract. Given the international trade and commerce which may be severely impacted, this issue is becoming a billion-dollar question. Therefore, we need to consider the appropriate allocation of risk and consequences of the current and further business deterioration resulting from the COVID-19 outbreak. As we all know, COVID-19 will pass one day, but the damages for non-performance of contract caused thereby will be left here. Our firm is advising clients on numerous legal issues relating to the outbreak, such as proposals to settle contractual disputes in the face of assertion of force majeure or any legal excuse by the other party. However, the impact of the virus on a particular business and under a particular contract will be fact-specific, and it is important for both parties to review the relevant agreements together with other material agreements to ascertain all rights and obligations. We suggest that the contracting parties impacted by the virus outbreak should now promptly analyze their rights and obligations under the contract by taking following steps:


Identifying key provisions of material contracts that may be affected by the recent outbreak (e.g., force majeure clause);Identifying notice requirements that have been or may be triggered;Considering whether there are alternative means to perform contractual obligations or proactive steps that can be taken in anticipation of the potential future effects of the outbreak in order to minimize the loss;Analyzing the potential consequences of a breach and/or default;Managing communications with the counterparty (e.g., inquiring about the official factory worker return days and allowing it to perform its obligations within a given reasonable period); andUnderstanding local regulatory actions and restrictions, and monitoring new