The second member of our Expert Panel, is Andrew Clifton, a founding member of the IoSCM Advisory Council. Andrew has a well-established career in Procurement, often sharing his expertise and insights with the readers of the Institute of Supply Chain Management‘s Members magazine; Supply Chain Outlook.
A Force Majeure or Forced Mayhem?!
Due to the catastrophic impact of the coronavirus pandemic (formally named COVID-19 in February by the World Health Organisation,), it is a matter of fact, not conjecture, that in the space of just a few short months since the start of 2020, every organisation across the globe has, and still is experiencing, significant and consequential supply chain disruptions on an unprecedented scale that regrettably, even dwarfs the SARS coronavirus (SARS-CoV) outbreak of 2003.
Taking the UK as a prime example, from an infrastructural perspective, schools, factories, cinemas, hotels, pubs, clubs, sporting venues and all non-essential shops have all had to close. With millions of people in some form of isolation, movements of the general population have been greatly restricted, which has resulted in millions of jobs being at risk. The regrettable and painful loss of human life and those affected by such tragedies, coupled with the strain of health, military, emergency services and care workers trying to cope with the Pandemic have ground day-to-day life to a halt.
Firstly, understanding the reality of your supply chain would be the apparent initial approach to quantifying disruption. This means analysing the supply chain way beyond your tier 1 supply base. Mapping the information against regions of the world most dramatically affected by the virus to the tier 2s, tier 3s even tier 4s and beyond. Having the measure of not only current inventory levels across the chain per se, but the location of such inventory and its logistics, taking into account port delays on perhaps penultimate points of shipping, and, of course, ultimate logistics to the points of where that inventory needs to be. In essence, door to door for each tier of the supply chain.
In these challenging times where procurement and supply chain professionals are trying to cope with supply and logistical issues, the last thing that you need is your supply chain trying to use contractual means to not deliver or fulfil their contractual obligations to you.
Typically, some (not all,) will invariably try and use the “force majeure”(act of God,) clause in the contract to do this.
Could force majeure be used to escape obligations based on COVID-19?
In essence, there’s no obvious answer to this, inasmuch that some supplier contracts will contain clauses incorporating phrases such as “public health risk, epidemic, pandemic, disease etc. or “matters beyond our control”.
Thus, initially, a point to be made is that “act of God” references are usually to be found within a force majeure clause, of which the operative words to note, are those references to “circumstances or events beyond reasonable control”.
This means references to “acts of God” are usually particular examples of “circumstances or events beyond reasonable control”. A well-drafted contract should make it clear that the specific examples used, do not detract from the generally used operative words within a force majeure clause.
To give this context, let’s take for example, what a typical force majeure clause should include:-
“… means any circumstance or event which is not within our reasonable control – including, without limitation:
(a) acts of God, flood, drought, earthquake or other natural disasters;
(b) public health risk, epidemic, Pandemic or disease …”
Therefore, the intention of the words “without limitation” is constructed to ensure that the specific examples, which follow within the instances listed in the clause mentioned above, do not limit the general definition of a force majeure circumstance or event.
That won’t necessarily be the case for most supplier contracts, and as such, the courts would be unlikely to imply force majeure. However, it may be possible that the courts would allow a termination under the doctrines of “frustration of contract” in English law.
Typically, when a supplier is unable to supply as a consequence of a Covid-19 related situation, they will usually be liable for damages, unless of course, they can invoke and prove a force majeure clause in this instance.
In the scheme of things, other relevant events down the chain of causation are more likely to be related to the question; Can a supplier can rely on a force majeure clause in a particular contract, rather than the origin of the Pandemic which set the wheels in motion. Or rather caused the wheels to stop!
From a cautionary perspective (as case law has yet to be tested on a Covid-19 force majeure case at this juncture), it would always be better to aim for an out of court amicable settlement with your supplier. This is especially true if you wish to preserve your supplier relationship, long after this pandemic crisis is over.
Andrew Clifton LLM, MCIPS, FSCM
Head of Procurement & Legal
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