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Personal Finance

Coronavirus headache in honouring contracts

A vendor masks herself her an animal cage in Guangzhou:
A vendor masks herself her an animal cage in Guangzhou: The coronavirus outbreak has led to restricted movement. PHOTO | AFP 

The coronavirus outbreak in China, being a global issue, has impacted countries. Luckily, Kenya has not been directly impacted by the virus as there is no reported case yet and we hope the situation remains that way.

However, the spread of coronavirus has indirectly affected international trade with China in some ways.

China is a major global exporter to many countries. In Kenya, a lot of small-scale retailers source their goods from China, for example a lot of the textiles and clothes are sourced from Wuhan in China.

The outbreak of the coronavirus has affected the trade.

WHO CLASSIFICATION

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The World Health Organization (WHO) has classified the coronavirus as a public health emergency of international concern. What this means is that all countries are required to observe caution and though travel and trade has not been directly banned, a lot of countries and national airlines have imposed travel bans into China. Some countries have issued travel advisories.

This has a negative impact on international trade since free movement of people is one of the key success factors in international trade.

When movement of people across borders is affected then international trade is also affected. There are valid fears of a negative economic impact of the virus especially on China.

The virus may affect contractual relationships. Coronavirus has now been recognised as an item in the force majeure clauses.

A force majeure clause in a contract, is one that applies when an unforeseen circumstance prevents one party from fulfilling their contractual obligations.

CONTRACT DRAFTING

Most contracts have force majeure clauses and even if they are not expressly provided for, it is in itself a principle under contract law.

What this means, therefore, is that if one party is directly prevented from performing contractual obligations due to the virus then force majeure can be deemed to have taken place.

However, the interpretation of what is force majeure or what is not depends on the drafting of the contract in some countries.

According to a World Bank definition of force majeure, coronavirus would be deemed to fall under the definition of the clause. This is because it may fall under the category of “natural events”that includes acts of God and plagues.

Therefore, where coronavirus directly affects contracting parties, force majeure can be invoked as the outbreak was unforeseeable.

LAW, NOT SCIENCE

Secondly, it must be established that the outbreak directly prevented a party from performing his contractual obligations.

For example, where a supplier sourcing goods from Wuhan, is unable to meet contractual terms due to the travel ban.

Such a supplier can invoke the clause to temporarily suspend his obligations.

Therefore, there is no breach of contract where an event of force majeure occurs. One cannot be sued for breach or non-performance if such an event has occurred. It will be up to the party affected to prove it as an event beyond his control.

The Chinese government has recognised the impact of coronavirus on contractual performance.

The China Council for Promotion of International Trade has declared coronavirus as an event of force majeure.

It has gone ahead to issue force majeure certificates. This is, however, only applicable to entities that have designated Chinese law as the designated law.

The virus may be examined in courts and other tribunals. This time the virus will not be subjected to a scientist’s microscope, but will be subjected to legal arguments and interpretations.

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