With respect to the area that most affects Bolivia, is located in the shipping industry. Which is affected in several ways, among them is the interruption of travel to and from China, and delays in other countries as a result of the quarantine, and the port controls due to cases and/or suspicions of coronavirus within the crew and passengers on board vessels. These situations generate delays in the deliveries of the loads, as well as forcing shipping companies to perform downloads on ports on ports alternative or temporary, which you see generates costly consequences and important implications for logistics and insurance. Also, the construction of new vessels and the repair to the existing ones is also delayed as a result of the impact of the outbreak in the labour force in china. These delays have forced several companies china's energy to comment on press reports, indicating the rejection of loads planned LNG claiming Force Majeure (“Force Majeure” or “Exceptional Events” in international contracts).
This outbreak spontaneous is forcing the global society to implement systems and strategies for effective workplace health and safety for workers and the community in general, with the goal of preserving the commercial interests and ensure the safety of the workers. In addition, companies must implement plans for the continuity of the business that allow the recovery of operations, in case of contingencies related to the COVID-19. These plans should be developed at the global level, particularly in the maritime industry, where they must be addressed strategies to the safety of the crew and passengers aboard the vessels and the potential impact on the target ports that can lead to sudden during the travel.
Similarly, contractual implications are not exempt from the effects of the coronavirus. Then, we make consideration to the contractual provisions relevant and the risk management strategies that can be used in the wake of the COVID-19.
WHAT A FORCE MAJEURE EVENT?
The parties affected by this global crisis should consider whether the contractual relationships subscribed provide for provisions of Force Majeure, and if the coronavirus was located within the protection afforded by these provisions. In general terms, Force Majeure events are unexpected circumstances beyond the reasonable control of the contracting party which, after occur in such a circumstance, is prevented from fulfilling its contractual obligations.
The release of the fulfillment of the obligations undertaken by a delivery as a result of Force Majeure is not recognized as a principle independiendo within the common law customary law (the law that prevails in the contractual relations international), with respect to the bolivian law, Force Majeure is inserted, in a general way, in the Art. 379 of the Civil Code. Therefore, to protect the interests of the parties, it is necessary to address this concept expressed in the contract, and therefore, the protection that this clause may grant will directly depend on the wording precise and concise.
In the context of the construction, there is the use of internationally accepted Conditions of the Contracts established by the FIDIC (FIDIC Conditions of Contracts). Which defines the Force Majeure (now called Exceptional Events) as an event or exceptional circumstances outside the control of the party affected and which the affected party could not have foreseen or provided before entering into the construction contract, nor could have been avoided once raised the circumstances. The event must also not be the fault of the other party.
The Conditions of the FIDIC contain an illustrative list of the types of Force Majeure events and circumstances that may be considered to be Force Majeure events. With respect to these events, the affected party must provide a notice required to be able to access an extension of time and/or recovery of the costs incurred as a result (this depends on the specific wording of the contract). If the exceptional event is prolonged, can be activated by a clause or right of termination of the contract. However, many contracts the FIDIC come to be negotiated and/or amended. So, the clauses contract will require a profound legal analysis and suscitación of a Force Majeure event will directly depend on the specific circumstances of the case. For example, in the absence of a curfew or strike imposed by the competent authority, it is highly unlikely that a worker's decision of not going to their source work can be considered a Force Majeure event.
With respect to COVID-19, whether the same constitutes an event of Force Majeure under the contract, the employer could face contractors that claim to have the right to invoke provisions within their contracts and suspend the performance of its obligations. If the contract contains measures of protection and/or repair costs that are associated with events of force majeure, employers could also face claims arising from the impact of the coronavirus. Again, this will directly depend on the terms of the contract, which may even force to the affected part to mitigate the effects of the event, to supply materials or workers from other places. Finally, adding even more complexity to the issue, you may encounter questions of concurrent claims, which require a holistic analysis of the specific characteristics of the case.
Within the maritime industry, have already been activated clauses of Force Majeure on the part of the enterprises of shipbuilding chinese as a result of the delays caused by the outbreak.
Also, keep in mind that not all contracts have a clause of Force Majeure. An example of this are the contracts of charter, which may not have these clauses, but if it shall contain provisions specifically drafted to deal with situations that affect a trip to the cause of an infectious disease. These clauses are generally referred to as Clause of Infectious or Contagious Diseases, as determined by the BIMCO (Council International Maritime and Baltic).
DOES THE EXISTENCE OF FRUSTRATION?
Again going back to the common law for its predominance in international law, if a contract becomes impossible to meet because of the coronavirus, there may be the possibility that a party asserting that such a contract has been frustrated (which is impossible). To determine the consequences that can have a situation of frustration is extremely complicated, especially with respect to financial responsibilities, however, in general, when this happens, the parties are exempt from complying with their obligations. Also, it is even more difficult to establish a situation of frustration, which it can not be used in the following circumstances:
- When the parties have agreed to the effects that it will have the Force Majeure events;
- When there is an alternative method of complying with the obligations; and
- When one of the parties fails to comply with its obligations because of a supplier of yours.
WHAT IMPLICATIONS WITH FUNDING CONTRACTS?
One of the complications largest of the coronavirus for businesses is the possible default of its financial obligations, for this reason it is necessary that the same review their credit agreements to assess the implications that may have the COVID-19 with their funding contracts. Within these contracts, it is of particular importance to review the provisions of Force Majeure, termination, and possible financial obligations which could be the subject of the party in breach.
If the company has not withdrawn the loan in full, the parties shall consider whether the circumstances give rise to a suspension of the funding, especially if the Force Majeure clause has been activated within their respective contracts.
To determine whether the impact of the coronavirus do not constitute a material adverse change with respect to a representation and/or warranty, as a pre-condition or an event of default will directly depend on the interpretation of contract is made. With respect to the clauses of adverse change material, these do not have a defined standard. Some versions of this disclaimer is determined that an adverse change only considered an essential change which directly affects the ability of a party to comply with its obligations with respect to the contract entered into, however, other compositions of this clause are much more extensive, which includes any change in the financial condition general of the party that acquires the loan.
In summary, to establish an adverse change material will be based out of a process highly subjective, it should take into account a careful consideration of the wording and the circumstances related to each case.
ACTIONS THAT MUST BE TAKEN
The possible business interruptions generated by the coronavirus cannot be underestimated given the great importance of China as exporter in the world, the workforce and the demand for goods in the global economy.
The measures companies should consider in order to manage the contingencies are:
- Insertion of the writing express the disease and/or epidemic in new contracts, or any modification in the existing contracts if possible.
- Verification of the protection clauses and/or Force Majeure in the existing contracts.
- Check and/or purchase of insurance policies, especially when the loads will be delivered in ports provisional.
- Studies of risk assessment, considering factors specific to each provider, and the conditions of work.
- Keep up to date with the areas affected with the coronavirus or any other disease, a reliable resource for this is the WHO.
- Train and ensure the workforce with respect to the coronavirus, including how it spreads, prevention methods, dissipation of myths and misconceptions.
- Audit suppliers, reviewing their respective systems and health policies.
- Ensure fluid communication between the controls executives and workers, providing updates on the outbreak, and making mock of containment.
National teams REINICKE OSTRIA – law firm S. R. L. are advising actively to customers in connection with the coronavirus outbreak. Do not hesitate to get in contact with a representative of the Firm if your company has been affected.