The impact of coronavirus on global trade and contracts

Headlines across the world are currently dominated by news of a new strain of coronavirus originating from the city of Wuhan, China. The virus is spreading rapidly, and has already resulted in numerous deaths.

The outbreak itself and the measures implemented by the Chinese government to contain it have and continue to impact world trade, and we have already seen negative effects on company share prices globally.

From a legal perspective, the outbreak has also started to give rise to a number of legal issues and disputes, and we are currently assisting and advising clients in several cases.

Arguably, the impact on world trade is of particular relevance to the shipping and offshore industry, although all stakeholders who may be affected, either directly or indirectly, should take note and be aware of the potential contractual and legal implications arising from the outbreak.

The outbreak and measures taken to contain the virus may for example:
• Impact Chinese shipbuilding and construction projects;
• Increase the risk of port closures, resulting in delays and deviations;
• Result in trade restrictions, safety issues, quarantines and embargoes;
• Lead to other implications for charter parties, impacting counterparties

The potential contractual and legal implications for shipbuilding contracts, charterparties, and bills of lading will however differ in each case, depending on the factual and legal matrix in question.

As an example, the Chinese government has recently extended the Chinese New Year holidays in order to try and contain and mitigate the spread of the virus. In several cases in which we are involved, this extension has resulted in contractual issues, and in particular questions of Force Majeure affecting contractual performance (which commonly arise in these types of situations).

Other examples include potential restrictions on transportation/trade, quarantine measures causing delays in performance, and shortfalls in labour supply. The knock-on effects may be significant, particularly for ongoing shipbuilding and other construction projects, and may give rise to contractual disputes.

Experience of previous outbreaks, e.g. the SARS virus, also suggests that other measures such as the closure of ports may be implemented, although we have not yet observed this. For charterparties in particular, this situation may result in a variety of legal issues relating to delay, demurrage, deviation and safety of ports.

In summary, the legal implications of the outbreak and measures implemented to contain and tackle the virus will inevitably depend on the specific contract in question. Therefore, affected parties should carefully assess and analyse their contractual arrangements in order to identify their rights, obligations and potential liability. In particular, parties should be aware of any notice obligations and ensure compliance therewith, particularly in relation to Force Majeure.

Our teams in Shanghai, Singapore, London, Oslo and Bergen are available to assist any clients requiring more information.