January 19, 2022

Volume XII, Number 19


January 18, 2022

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The Impact of Coronavirus on Supply Chain

The global Coronavirus Disease 2019 (“COVID-19” or “coronavirus”)  outbreak has caused supply chain disruptions to businesses around the world.  From delayed production to halted factory operations and slim shipping and freight options, the coronavirus costs keep mounting for businesses facing huge losses.  Developing a cogent response to the outbreak can be extremely challenging, given the scale of the crisis and the rate at which it is evolving.  

Supply Chain; CVOID 19; Coronavirus

Force Majeure

Supply contracts may contain a “force majeure” or an “act of God” clause that may give rise to a legal basis that excuses a party’s nonperformance under the contract.  The concept of force majeure is often used in supply agreements to address unforeseen widespread disruptions in downstream markets. Under certain circumstances, companies may be required to provide a notice or declaration of force majeure within a specified or reasonable period of time.  Failure to provide timely notices may result in waiving the force majeure defense.

Recovering Damages

One of the most pertinent problems of the outbreak may be the non-delivery of cargo due to ships and planes being placed into quarantine at an intermediate place of delivery.  Buyers and sellers should examine their contracts to ascertain whether they have a claim under the contract for non-delivery or delivery to the wrong destination or a defense to such a claim. It is also important to analyze the potential consequences of a breach, and to understand any existing regulations that require companies to take any steps that may alter or affect contractual obligations.  Equally important is the maintenance of  clear documentation of any losses your company suffers so that you can support your damages claim should litigation be needed.

Frustration or Hardship

In the absence of a force majeure clause, if an agreement becomes impossible to perform as a consequence of the coronavirus, a party may be able to argue that the purpose of the agreement has been frustrated.  For example, the lack of skilled labor, travel restrictions or illness may serve as potential grounds for frustration.  However, ascertaining frustration is not always straightforward, and can depend on several nuances such as whether the parties have contractually contemplated the consequences of a force majeure event, or if the frustration of purpose is only due to an unreasonable expense.

What Should You Do?

  • Review your contracts to assess your contractual obligations and

  • Trouble-shoot issues that may develop if your business is not able to comply with its contractual obligations to minimize the consequences of any breach.

  • Analyze how trade agreements may impact or enhance your legal rights. Consider whether you need to defend your rights in court.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume X, Number 64

About this Author

Angela Reid Lawyer Sheppard Mullin Law Firm

Angela Reid is an associate in the Business Trial Practice Group in the firm's Los Angeles office.

Areas of Practice

Angela represents clients with business disputes. She has litigated claims involving breach of contract, fraud, unfair competition, breach of fiduciary duty, unlawful detainer, and shareholder actions in several industries.  She has experience with all aspects of civil procedure, including filing and responding to complaints, conducting discovery, motion practice, and judgment enforcement. Angela is also actively involved in the firm’s...

Whitney Jones Roy  Los Angeles Litigator at Sheppard Mullin Law Firm

Ms. Roy specializes in business litigation and complex environmental litigation. Her experience includes representing clients in a variety of business disputes and against claims of fraud, breach of fiduciary duties, breach of contract, unfair business practices, negligence, nuisance and trespass. Ms. Roy has also developed a specialty in litigation relating to products liability, Proposition 65, the Clean Air Act, and CERCLA. She has been involved in insurance litigation and defending class action lawsuits. Ms. Roy's cases have related to a broad spectrum of industries...