Reed Smith Client Alerts

The impact of the novel coronavirus (COVID-19) on all our lives – professional and personal – is changing day-by-day, if not hour-by-hour.

It is hard to predict with any accuracy the challenges we and our businesses will face in coming months. Our conversations with clients over the last few weeks – and particularly over the last few days - led us to consider with colleagues across Asia, Europe and the US some of the challenges which may arise and which our clients may wish to prioritise for early consideration and/or action. We are in uncharted territory. In trying to anticipate the kinds of issues that may arise from the COVID-19 outbreak and from the global responses to it – political, legal and economic - we have drawn to an extent on our and our clients’ experiences with other epidemics, and from the global financial crisis of 2008/2009.


Any global shock tends to result in the following themes, though note that these are exceedingly high level, and the list is certainly not exhaustive:

  • Ongoing performance of existing contracts, particularly in such volatile markets, becomes increasingly difficult. Frequently there is understandable uncertainty about whether/when/how to invoke contractual provisions of one kind or another which seek to discharge parties from their duties to perform or to apportion the cost of performing in a particular way.
  • Those legal teams able quickly to identify common provisions running across their existing contracts are at an advantage. It is then much easier to help support commercial/trade execution/operations/finance teams to:

(i) locate and understand provisions which offer assistance;

(ii) identify what the requirements are for any notices which need to be given – from a timing/form/content point of view;

(iii) differentiate between types of contract (spot/term/financial/freight), and be alive to the fact that provisions in interrelated/theoretically “back-to-back” contracts may not in fact have the same requirements or offer the same protections; and

(iv) ensure that the various teams in your organisation interact with each other even more closely than usual, in order to ensure that left hand and right hand do not inadvertently waive or even amend otherwise helpful rights.

  • The initial operational difficulties being encountered in the performance of existing contracts will give way inevitably to greater risk of default and potential insolvency. It make sense as early as possible to focus on exposures across different products/desks/geographies, analysing in whichever way each organisation (and its systems) is used to. There is no right or wrong way, whether:

(i) by size and scale of contract or position by counterparty;

(ii) by the type of transactions, whether financial, derivatives, physical, long term, short term etc.;

(iii) by counter party type: financial institution, corporate (public or private, with credit rating or not), state or semi-state organisation etc.; and/or

(iv) by geography and by reference to the spread of COVID-19.

  • Having identified exposures, seeking to identify ways of categorising the risk levels of those exposures and identifying what risk mitigants are available: contractual provisions/rights to seek performance assurance/rights to seek credit support/availability of insurances etc.
  • Having done that, and as mundane as it sounds, ensure that documents and information (including transaction documents) are identified, collated and stored in one place be that by counterparty or by size of exposure, so that precious time to analyse is not lost simply in trying to locate information.
  • Ensure that a distinction is drawn between the approach to existing contracts and new ones. Structures, contracts and provisions in those contracts which might have seemed fit for purpose six months ago, might not be as fit for purpose in the current environment. Take as an example Force Majeure provisions. Force Majeure protection is traditionally there to protect the parties against the unforeseeable; something beyond either party’s control. The relevant time for testing whether something was or was not foreseeable is the time of contracting. It will be much harder today to argue that an event related to COVID-19 and the responses to it is unforeseeable today than it was 6 months ago. Specific protections will therefore need to be built in if possible.