There are many ways in which the coronavirus, officially known as COVID-19, is likely to impact on the commercial activities of businesses operating internationally. The challenges inherent in maintaining global supply chains will be pushed to breaking point in the current COVID-19 crisis. This, in turn, will inevitably lead to an upsurge in international disputes.
International commercial arbitration offers parties a flexible means of obtaining the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense. Even if the parties did not include an arbitration agreement in their original contract, it is still possible for them to agree that an existing dispute be referred to arbitration. Party autonomy, a fundamental principle of international arbitration, allows parties to agree how their dispute is to be resolved. It is therefore an attractive option for parties facing challenges in the COVID-19 world.
The lengthy lockdown on business and communities in China has already impacted on the ability of the supply chain to service outbound contractors. Production and movement of materials has been delayed and there may be obstacles to the shipping and landing of Chinese materials in foreign ports depending on a foreign government’s efforts to contain the virus.
With such adverse impacts on supply chain contracts looming large, parties will be considering ways of deferring the performance of contractual obligations without penalty.
The most likely justification for doing so will be under the concept of “force majeure”. Originating in French law, this means literally “superior force”. Its principles can reduce or eliminate a party’s liability where performance of the contract is prevented or hindered by an event or circumstances that it cannot control.
There are differences of approach to “force majeure” depending on whether a jurisdiction belongs to the civil or common law tradition.
In the civil law tradition, followed in the European countries and China, the principles of “force majeure” are implied into contracts. Common law jurisdictions, such as England & Wales and the USA, have no general definition, or concept, of “force majeure”, rather it is a creature of contract. It is therefore important to carefully consider the terms of the “force majeure” clause if the contract is governed the law of a common law jurisdiction.
The potential culture clash between parties and contracts from differing jurisdictions can have an impact on the means of resolving a dispute. Rather than litigating in a state court with a legal tradition different to the party’s own and a potential for bias in favour of a local party at a time when national borders are being reinforced as never before, parties may well favour international arbitration with its inherent flexibility and access to a final, binding decision that is easily enforceable worldwide.