Commercial outfits will continually strive to keep up with the challenges presented by the novel virus — but the extent of the damage remains unknown, says Warwick law student Francis Zealley
As infections of the coronavirus (also known as COVID-19) topple over 125,000 and rattle the global economy, the world of commercial law has plenty of reasons to be alarmed.
The coronavirus is rapidly demanding legal attention from commercial firms whose clients are seriously impacted. At the same time, the ability of commercial lawyers to even carry out their work is being threatened by the virus.
The flexibility of commercial firms will be tested by the virus. Baker McKenzie discovered this recently. The firm temporarily closed down its London office after a potential case of the coronavirus came to light. It issued a statement insisting that the closure would not impact their services:
“We have a well-established agile working programme — including sophisticated technology and IT systems for home working — which allows us to take these precautionary measures without impacting our client service delivery.”
Still, this does not apply to all firms. Pinsent Masons’ legal director Sue Gilchrist has stated that “many employees will be able to work remotely, but accommodating these absences will be more difficult where agile working is not possible.” Consider that commercial work is primarily team-oriented; when solicitors must work individually from home, the pace that firms usually maintain inevitably slows down. Hence, despite their statement, I suspect that Baker McKenzie’s swift reopening came as a considerable relief to the firm.
International closures are also hampering the ability of commercial firms to conduct their work. Shearman & Sterling has issued a travel ban for China and Hong Kong, and is minimising travel to all contaminated regions; Dentons has closed its office in Wuhan, China; Linklaters is imposing a 14-day work from home restriction on all staff returning from affected regions; in Milan, at least ten commercial law firms have taken measures to protect their staff, with several office closures. The list goes on. Many UK teams will find that the removal of international staff will hinder their ability to conduct work for international clients.
However, litigation might be most drastically impacted. For litigation, a physical presence in court is often required. Litigants, their lawyers, witnesses, experts, court staff and judges will all be called upon in civil hearings. That is, until they can’t be. If a crucial party cannot attend, procedures will grind to a halt and the firm’s work for a client will be obstructed. Even worse, courts in certain jurisdictions will not open while the coronavirus continues to spread.
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Countries are scrambling to respond to this looming crisis in litigation. There is precedent in the UK for civil hearings to use video and telephone links. Commercial firms have previously used video-conferencing so that no physical presence is required in court. However, this has generally been limited to the preliminary or interim stages of disputes. I would argue that courts and commercial firms must expand these technological frameworks in response to the spread of the coronavirus.
Steps are being taken in the right direction. For example, an emergency bill is about to be pushed through the UK parliament which includes a provision that in several stages of a dispute, video testimony will be allowed in civil (and criminal) courts to minimise the risk of contracting the virus.
China’s Supreme People’s Court is taking drastic measures. Commercial disputes are being mediated through a new online program, a “mobile micro court” app. Just over two weeks ago, the first Chinese online mobile hearing for a commercial dispute occurred. This was unprecedented. It came about because the parties were either unable to enter their offices in fear of the coronavirus, or were quarantined at home. The Supreme People’s Court is instructing judges to embrace the online system for litigation, and insisting that all Chinese courts advise litigants to settle disputes online.
However, this system will be inadequate for complex disputes. A Supreme People’s Court judge in Hefei, China, observes that “complicated disputes and those that demand litigants to offer abundant evidence still need to be postponed during the epidemic… people’s health and safety must always be the top priority, compared with their litigation rights.” Commercial firms are at risk of temporarily disappointing clients in regions where litigation work is impaired.
On the global economic scale, the impact of the virus on commercial law will be more profound. Namely, an increasingly prevalent issue facing commercial firms is clients seeking advice on the use of ‘force majeure’ clauses. This is a clause in some commercial contracts which can be invoked when an unforeseeable circumstance stops the parties from fulfilling their contractual obligations. It frees them from liability that would otherwise arise from non-performance under commercial contracts. If the parties cannot come to an agreement, they will have to go to a court or adjudicator and convince them that the coronavirus represents a force majeure event that is preventing the client from fulfilling their obligations (for example, if a manufacturer cannot produce enough of a product due to factory closures).
Some commercial contracts provide that if the force majeure event (the coronavirus) lasts for a certain period of time, it will give the parties the right to terminate the contract. This period of time is often between 90 and 180 days. This is leading to great uncertainty as it is unclear how long the impact of the coronavirus will last. In other cases, force majeure clauses will only suspend a party’s required performance.
Why is this significant?
For one thing, many Chinese suppliers and buyers have already successfully invoked their force majeure clauses, and the pile of unfulfilled contracts is swiftly stacking up. Economically, this is certainly dangerous, with the increasing signs of recession only propelled by the invoking of force majeure clauses. The impact should not be underestimated.
Commercial clients will find themselves losing profits quickly. Commercial firms are already advising many clients on claims that the outbreak of the coronavirus constitutes a force majeure event. Clients who do not have force majeure clauses in their contracts with other companies are in an especially precarious position — they may have no defined excuse for non-performance in an event like the coronavirus pandemic, and therefore will be liable for breach of contract.
The ability to use a force majeure clause as a remedy to excuse non-performance or delay is dependent on the law of the country where the contract applies. Civil law jurisdictions, such as China, provide force majeure remedies even when they are not contained within the contract. Under Article 180 of China’s General Rules on the Civil Law, force majeure automatically applies to commercial contracts governed by Chinese law. This will have a ripple effect throughout the commercial world because China’s suppliers and buyers are most likely to be impacted by the virus. Common law jurisdictions also frequently have express force majeure clauses in international commercial contracts.
As the extent of the damage that will be caused by coronavirus is largely unknown, commercial law will continually strive to keep up whilst remaining relatively in the dark. It will be up to commercial firms to decide if they can rise to the novel challenges the virus presents.
Francis Zealley is a first-year law student at the University of Warwick. He is an aspiring commercial solicitor.
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