ContractsProf Blog

Editor: Jeremy Telman
Oklahoma City University
School of Law

Tuesday, May 26, 2020

Teaching Assistants: Covid & Contracts Round-Up

If you are looking for some material to make your contracts course more topical, here are some recent articles on the effects of the pandemic on contractual relations.  You may want to have a look at this scholarship to see if any of it presents materials that you can use to supplement your teaching.  Or you may want to have a look to make certain that you are up-to-date on the state of play in the world of commercial contracts law.

First, Klaus Peter Berger and Daniel Behn have posted a draft of their forthcoming paper, Force Majeure and Harship in the Age of Corona: A Historical and Comparative Study.  Because it is a draft, we will just share their abstract:

Force Majeure and Hardship provide legal tools to deal with the effect of unexpected future events and unforeseen changes in circumstances, particularly in long-term contracts. Given its global and unprecedented dimensions, its lethal potential and its drastic effects on international contracts the COVID-19 pandemic will generate years, if not decades, of post-pandemic litigation and arbitration focusing on the application of these two concepts. The paper examines the two concepts, from their historic origins over the different paths they took in civil and common law to modern transnational contract law as applied by international arbitral tribunals. Based on this historic and comparative analysis, the paper shows that in such extraordinary times, the doctrines of Force Majeure and Hardship assume the role of regular, rather than exceptional legal remedies, allowing for the risks emanating from the unprecedented crisis to be evenly distributed between the players in the global economy.

Christian Twigg-Flesner has posted on SSRN his contribution to Law in the Time of Covid-19, a chapter entitled "A Comparative Perspective on Commercial Contracts and the Impact of Covid- 19 - Change of Circumstances, Force Majeure, or What?".  The chapter provides a comparative perspective on contractual provisions relevant to the challenges that commercial parties will face in enforcing, or escaping liability for, contracts that may not be performable due to the pandemic.  This short article is notable for its discussion of the International Chamber of Commerce's force majeure clause, updated in March 2020, and recommended for inclusion in international commercial contracts.  The article then addresses affirmative defenses in the absence of a force majeure clause under English, German and  French law, as well as under Article 79 of the UN Convention on the International Sale of Goods and Articles 7.1.7. and 6.2.2. UNIDROIT Principles of International Commercial Contracts.

Three common features of these legal regimes will arise frequently in disputed cases: whether the event arose or become known after the contract was formed; whether it was foreseeable; and whether the party seeking to have its performance excused assume the risk.  Dating when the pandemic was known or knowable can be a challenge, as can assessing its foreseeability.  After all, there have been other incidents in recent memory of global health challenges, although none had anything like the economic impact of Covid-19.  Assumption of risk has to be assessed through a review of contractual terms.

Before concluding, Twigg-Flexner assesses whether existing contractual doctrine provides adequate tools for addressing the new challenges that the pandemic raises.  Traditional contracts tools can be supplemented.  Standstill agreements, for example, can be legislatively required, as in a recent German law permitting consumers and small enterprises to withhold performance on defined economic grounds until June 30, 2020 for contracts entered into before March 8, 2020.  

For students capable of grasping more sophisticated material, Patrick Bolton and others have posted Born Out of Necessity: A Debt Standstill for COVID-19 on ssrn here.  The authors first address the very different impact the pandemic is having on rich and poor countries.  While the Group of 20 leading economies has already agreed to a temporary debt service standstill on bilateral official loan repayments for 76 of the poorest states, the authors advocate expanding the standstill in two ways.  First, is should encompass middle-income states, such as Mexico.  Second, it should cover private creditors, which hold the majority of the sovereign debt of such middle-income states.  The authors

propose that multilateral institutions such as the World Bank or other multilateral development banks create a central credit facility allowing countries requesting temporary relief to deposit their stayed interest payments to official and private creditors for use for emergency funding to fight the pandemic.

The article then explains what is at stake, what motivates the proposal, the mechanics of how it will work, and the advantages of their proposal over alternatives.

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