To prevent the spread of COVID-19 (the “Coronavirus”), last night, President Trump announced a thirty (30) day travel suspension from twenty six (26) European countries to the United States. The suspension will take effect on March 13, 2020 at midnight, EST. The President’s statements acknowledged some exemptions to the suspension for certain individuals, but indicated that a “tremendous amount of trade and cargo” would be directly impacted by the suspension. However, the attached Proclamation issued in connection with the travel suspension is much more limited than the President’s statements. The Proclamation excludes trade, U.S. citizens, and lawful permanent residents from the ban.

Buyers and sellers of goods worldwide are encouraged to closely review their commercial contracts to anticipate the impact of any potential business disruptions due to the Proclamation and unavailability of key personnel. Such disruptions in the supply chain may make the performance of a seller’s contract obligations difficult, unprofitable, or impossible. Specifically, both buyers and sellers should look carefully at the language of their contracts to determine (1) whether the type of event qualifies as a force majeure performance excuse under the contract, and (2) any applicable requirements for providing notice of nonperformance under the contract or alternative means of performance.

1. Force Majeure

Force majeure provisions are included in many commercial contracts and operate to excuse a party’s nonperformance when an event outside of the party’s control prevents a party from fulfilling their obligations under the contract. Whether the type of event qualifies as force majeure under the contract depends largely on the language. Commercial contracts should specify what qualifies as a force majeure rather than rely on legal interpretation in the U.S. or international jurisdictions governing those contracts.

2. Notice Procedures and Obligations

Sellers should review their commercial contracts to determine the following:

• Within how many days of seller's knowledge of a potential delay or nonperformance must Seller provide notice to Buyer? If unspecified, notice of any delays or nonperformance should be provided to Buyer as soon as possible.
• Does the contract provide for extensions of time to perform and recovery of additional costs to be incurred?
• What actions can or must the Seller take to mitigate the impact of the delay or nonperformance on the Buyer?

Buyers should review their commercial contracts with a focus on the following:

• What are Seller’s requirements to disclose and claim a force majeure?
• Does the Seller need to take reasonable steps to mitigate any adverse consequences of Seller’s nonperformance?
• What are the potential consequences of delays or nonperformance for Buyer under the contract? Are they insured?
• Are there alternative means to obtain performance under the contract?
• Did Seller meet all contract obligations prior to the potential breach in connection with the Coronavirus?

Many commercial contracts permit the Buyer to terminate the contract and source elsewhere if a force majeure continues beyond a designated time period. The specific wording of the contract is essential when reviewing a force majeure claim, and preparing a proper response to any delays in performance.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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