Crisis Preparedness and Business-Critical Agreements during the Coronavirus Outbreak

The spread of the Covid-19 coronavirus continues, and the situation is raising an increasing number of questions on how to deal with commercial and legal risks.

The situation is already affecting all operations, but the full extent of the effects is still unknown. We think the wisest approach to this situation is to hope for the best and prepare for the worst. Eversheds Attorneys and the entire international Eversheds Sutherland advises clients in this changing situation.

Crisis Preparedness of a Company

Check the company’s routines and contingency plans and carry out a risk assessment in case of an even larger virus outbreak. Agreements, procedures and other related documents concerning insurances, health and safety as well as the company’s commercial procedures should be reviewed in order to assess the particular risks relating to the company’s ability to keep its operations going in the event of crisis. If any parts of the company’s operations seem particularly vulnerable, they should receive special attention. The company’s financial capacity in the event of disturbances in deliveries or orders must also be taken into account. Insuring the company against losses through credit insurance - to the extent possible - can be a way to protect the company through tumultuous times.

Business-Critical Agreements and Force Majeure Clauses

A force majeure event refers to a situation in which a contract party is prevented from fulfilling its contractual obligation(s) on account of an external unexpected and exceptional reason. It has been generally considered that the event needs to have been unforeseeable and beyond the party’s control. An example of such an event was when the volcano Eyjafjallajökull erupted in Iceland in 2010. If it is already known when concluding the agreement that it is impossible to act in accordance with the agreement as a result of the coronavirus, it normally is not possible to invoke the force majeure clause because the circumstances were foreseeable in such a case.

Business-critical agreements have often been equipped with provisions specifying or expanding the scope of interpretation of force majeure from that determined in legal praxis. We recommend reviewing the company’s most critical commercial agreements with both suppliers and customers, as well as the wording of any force majeure clauses.

Whether the coronavirus constitutes force majeure must be assessed separately on a case-by-case basis in the light of legislation and agreements. Particular attention should be paid to whether the coronavirus actually has prevented a party from fulfilling their contractual obligations. The party invoking force majeure must be able to show that the situation really meets the conditions set for a force majeure event. This is why it is important to document all correspondence between the parties in writing. Companies should keep track of recommendations of the authorities such as the Finnish Institute for Health and Welfare and the Ministry of Foreign Affairs for reasons of production and presentation of evidence, but it is also important to otherwise follow the instructions as precisely as possible. It may also be worthwhile to follow media reporting on the spread of the virus. Such reporting may be useful as evidence in potential future disputes.

A party considering that there is a force majeure event which prevents meeting contractual obligations must inform the other party of such event and hindrance in accordance with the relevant provisions included in the agreement in question without delay. If no particular way of making such notification has been specified, we recommend making the notification to the regular contact person but also sending corresponding information to the company’s managing director or other person in a comparable position within the company.

Making constant assessments of the situation is important, as is acting on the basis thereof as soon as possible if it is considered or suspected that a force majeure event is at hand. If a customer or supplier notifies you of difficulties in fulfilling the agreement between you and them due to force majeure, you must also assess how this will affect your ability to fulfil your other contractual obligations and what possibilities you have to invoke the force majeure clause in the case of these contracts. It should also be noted that such force majeure events can be interpreted differently in different countries.

When concluding new agreements in the near future, it is advisable to pay particular attention to the drafting of force majeure clauses and to the fact that they can be triggered in crisis situations, such as the epidemic now at hand.

If you have any corona-related questions about your contracts and agreements or you need other advice on contract law, please contact: