COVID-19: What is the impact on companies operating internationally?

Question 1:  

My company must submit a major bid abroad and if we get the contract, it means that we will have to deliver our equipment to our client's premises as well as send a team to install the equipment.  Should we submit this bid or wait? 

Answer 1: 

With border closures around the world, currently restricted to travellers and not goods, the fact remains that things can change quickly.

The duration of this pandemic is unknown. Responses and actions vary from country, state or province, sometimes even at the municipal level. It is therefore very risky to commit to such a contract, especially with respect to installation services, since employees may be prevented from travelling abroad, may become ill, or even be unable to return, in addition to a foreseeable quarantine.

It is obvious that companies will have significant problems and delays in their supplies, as well as production in the plant or finding means of transportation, since this pandemic will have the effect of temporarily reducing the available workforce required for normal operations.

Knowing these risks, if both parties are still willing to contract, then protecting yourself as a seller through the terms of a written contract, signed by both parties, which will include an enhanced "force majeure" clause is adequately needed.

This type of clause will need to provide for more than just natural disasters and catastrophes, including epidemics/pandemics, quarantines, border closures and other decisions and actions by government authorities. It will also need to provide for delays and inability to find transportation or to source raw materials, components, parts and other inputs from suppliers.

It would also be prudent to mention that this clause will also apply in the specific context of the COVID-19 pandemic, in order to make it clear in the contract that the parties, who knew or could have imagined that there would be the possibility of non-compliance with the contract because of this virus, nevertheless agreed to contract together and to provide a loophole in this particular circumstance.

The contract should furthermore clearly state that the delivery date is only an approximate date and that no default, compensation or penalty will apply to your business as a result of such situations.

Question 2: 

Our company ordered strategic components from international suppliers, which will then be integrated into the production chain of our products in Canada. We are concerned that we will not be able to receive our components on time, as Chinese factories are in the affected areas. What could we do?

Answer 2: 

Obviously, try to contact your supplier for more information on the local situation.

Also take the time to look over the contractual documentation related to this transaction. If you have not signed a written contract, your document exchange such as purchase orders and order acceptance confirmations, or simply quotations and purchase orders, are still valid contracts between the parties.

One of the difficulties may be that neither party has foreseen what would happen in the event of such a problem, nor what laws and courts would have jurisdiction to resolve such a situation. Our international trade lawyers, who also have access to our affiliated international law firms, should be consulted and will be able to advise you on the specific legal situation your company is facing and may be able to suggest solutions.

Even if no contract has been signed, it is possible that the supplier's bid may still contain conditions that you have accepted by sending your purchase order or payment. These terms and conditions could also possibly be found on your supplier's website, which is referred to in the supplier's documents as part of the terms and conditions of sale. These general terms and conditions of sale may also have been attached to the documents sent by your supplier, which are often in small print that few companies bother to read.

If such supplier terms and conditions of sale exist, they will most often include a "force majeure" clause (see question 1 for more details on this type of clause) which will normally release the supplier from any liability for default or delay in such a case. Although not necessarily mentioning epidemics/pandemics and specific cases of COVID-19, general terms often used by the supplier could include this situation.

In the event of a dispute, it is also likely that the supplier will have provided that the applicable laws will be the laws of its country, as well as its local courts or arbitrations in its country. You will then be left with no choice but to attempt to negotiate or to wait until the supplier is able to meet its obligations, failing which no other recourse will be available against the supplier. Our specialized lawyers will be able to confirm whether there is any potential recourse against a supplier, considering your case.

We also recommend that you try to protect yourself against the default of a supplier by diversifying your suppliers, in the hope that not all of them will be equally and simultaneously affected by the pandemic, fluctuations in the financial markets and changes in exchange rates. So now is a good time to actively look at your supply capabilities.

Question 3:  

Should our company consider changing its contract templates to be better equipped to deal with this pandemic or similar situations in the future?

Answer 3: 

Absolutely! All international contract models could be improved, following their review by our specialized lawyers, and adapted in your favour, depending on whether you are the buyer or the seller of products or services.

For example, your contracts for the sale of products and services, bids, offers of services, distribution, supply or representation contracts, purchase orders, invoices and general conditions, etc.

The "force majeure" clause will have to be adapted on a case-by-case basis.

Penalties or compensation measures may be provided for or revised. The contract termination clauses may also be improved, among others.  

It is therefore important to seek advice from our specialized lawyers, who will also be assisted, if necessary, by our foreign partner firms, if foreign laws apply to your contract.