Covid 19 an "Act of God"?

It's not just the health care system fretting about the Covid-19 virus. Commerce is also affected especially in the modern-era of global supply chains.

A lot of western concerns are dependent on products and components sourced from China or elsewhere in Asia. Many other industries, especially in the resource sector, get a lot of their revenue selling to China. China may sell more than it buys but it still buys. Just look at how we target China as a prospective major market for bitumen and LNG.

Commercial contracts often have a "force majeure" clause that exempts the parties from liability (i.e. claims for damages) for non-performance caused by unforeseeable consequences beyond the party's control. Let's say that ISIS overruns your refinery, for example, or a flood of Bibilical proportions swamps your mines, something rising to the standard of an "Act of God."

Where problems can arise is that different countries can have different interpretations of these terms. Not surprisingly, Chinese authorities are a little more cooperative with Chinese industries in issuing force majeure certificates.  Your country, however, may have a more narrow interpretation, a tougher standard established in your nation's courts. You might not have an enforceable claim against your supplier for failure to perform but that might not take you off the hook for claims from your customer arising out of the very same failure to supply.

It's a complex area of law that rarely offers ideal solutions.

Bloomberg offers a look at a related problem, the "price majeure."

Illness is a very unusual reason for declaring force majeure, but coronavirus isn’t a common ailment. It has quarantined entire cities in China, overwhelming hospitals while leaving streets and workplaces empty. Some commodity contracts won’t include epidemics, Perrott said, although a case could still be argued. “The more the measures to contain the virus prove to be unsuccessful,” he said, the stronger the case. However, it’s a brave trader who turns to the legal system to take on China. In practice, those doing business with the world’s fastest-growing economy may find it easier to negotiate a solution that works for both sides.

Traders often talk about “price majeure,” which isn’t a legal term but a joke about Chinese buyers using any excuse available to walk away from a contract when prices have moved against them. Take LNG: long-term cargoes are often priced as a percentage of the oil price, meaning that they cost about $6 per million per British thermal units. In the meantime, the LNG cargoes can be bought in the spot market for as little as $3 per million British thermal units. The trick for a buyer is to declare force majeure in the long-term supply contract, and turn around and buy cheaper cargoes in the spot market. If that happens, that’s when the sellers call their lawyers.