The evolution of COVID-19

5th March 2020

As the outbreak of the latest coronavirus spreads across the globe, the consequences for commercial transactions are evolving. From what was initially a shorter term focus on immediate impact, all of us in business are now in the position of planning for longer term change. Designated by the World Health Organisation as COVID-19, this outbreak has been declared by the World Health Organisation as a public health emergency of international concern and its evolution is forcing a re-evaluation of business preparedness in respect of both operations and supply chains.  For example, whereas a company trading globally might have been able to assume the free flow of materials and people and used this assumption to source particular materials or people from particular countries, this latest coronavirus crisis is yet one more illustration of the vulnerability of this assumption, following on the heels of Brexit and talk of trade wars.

Perhaps the initial focus in contracting was looking for relief from performance via the mechanism of force majeure provisions.  As many have pointed out, claiming relief under such provisions is only the starting point: there are hurdles to surmount, not simply any conditions set out in the force majeure clause but ensuring a clear causal link between the consequence of COVID-19 and the delay in or failure to perform.  With what is becoming a long term situation, triggering force majeure may simply result in triggering termination of the contractual relationship, not necessarily the outcome that will be required. The focus needs to shift to longer term solutions.

Businesses will no doubt be focusing on business continuity planning but what they have put in place or agreed in their contracts in this respect may need a closer look, particularly if plans were designed without a public health emergency in mind. As a minimum these plans should take into account current WHO recommendations for the public protecting themselves and travel advice to enable all in the business to play their part in preventing the spread of the disease as well as reviewing local government advice. They should also be reviewed for new or different strategies in respect of working from home, business travel or a transfer strategy for functions that could be moved locations. Other actions are reviewing technology to ensure it can support increased remote working, checking insurance coverages and having a clear picture of critical members of your supply chain and their preparedness on the basis that this outbreak has exposed many dependencies on sourcing from China.

It will be critical to ensure that you have the most up to date analysis of instructions issued by relevant authorities and consider how you ensure the business and employees comply with what could be rapidly changing regulations.
 

Now is also the time to start thinking about the impact of government measures on business. For those dealing with entities in China, this will have already had a major impact. Now the UK Government has issued its first set of Coronavirus regulations (aimed at ensuring infected patients can be held in particular isolation units), we could begin to see a variety of further measures in the UK aimed at restricting transmission via restrictions on movement if the situation worsens, the issue being, how does a business prepare for this type of scenario?

Outside medical treatment and investigation, if the UK chooses to follow measures implemented by China, we might see some of the following:

  • strengthening ports of entry and quarantine: for example, the Chinese Customs Department launched an emergency plan for public health emergencies at ports across the country, using a health declaration card system for entry and exit into cities
  • social distancing and cancellation or suspension of large scale events plus sporting events, cinema, theatres, schools and colleges
  • traffic controls such as suspension of urban public transport
  • emergency support where the Chinese government restored production for particular businesses and expanded production capacity for key enterprises
  • China has also, according to the World Health Organisation, capitalised on the use of IT, big data and artificial intelligence for COVID-19 response, including using these to increase accessibility to health services

 

At least 38 countries have put in place additional measures that restrict international travel to and from China and certain other countries, including some denying entry of particular travellers or suspending flights. Cross border travel is not just limited by many governments’ advice against travel but also by reduced availability of flights, whilst many businesses have decided to treat certain international travel as inappropriate.

And finally, whilst this briefing is looking at what may be put in place in the UK, businesses may also need to comply with foreign government directives for exports/imports or sending personnel to those countries, particularly directives emanating from China. It will be critical to ensure that you have the most up to date analysis of instructions issued by relevant authorities and consider how you ensure the business and employees comply with what could be rapidly changing regulations.

This is one of a series of briefings by the Commercial team at Eversheds Sutherland on COVID-19.  Visit our Coronavirus hub to access our other briefings.

For more information please contact Simon Crossley or Tom Bridgford.

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