Covid- 19 and the Impacts on Commercial Relations

By Marcia Calafate and Marcel Nunes, partner and associate of International Trade, Commercial Contracts, Mergers & Acquisitions, Real Estate group of Trench Rossi Watanabe, respectively

From a legal standpoint, the coronavirus epidemic has a direct impact on commercial relations, especially those comprising the delivery of a product or of a service, such as purchase and sale, supply, distribution, services, infrastructure, consultancy, marketing, etc. Business relations among companies are the most affected since companies are at the heart of the so-called supply chain, from the moment a product or a service is developed to its specification, manufacture, availability, marketing, sale, delivery and post-sale. If a link in that chain is affected, all other links will somehow be affected and should be reviewed.

From the moment that the expectation of a supply or delivery is disrupted, it is necessary to analyze the consequences for the entire chain and especially the risks resulting from the non-compliance of the affected parties. It is necessary to verify whether it is a breach that may trigger a fine, penalty or termination subject to indemnity. It is also important to check whether the contract or the applicable law allows invoking some type of disclaimer of liability, such as, for example, force majeure.

In the time of Covid-19, not all breaches are necessarily justified by force majeure. Therefore, it is not always the case that a party will have a reasonable excuse for not fulfilling its obligation or exempting itself from liability. Although it is not customary, under Brazilian law it would be possible for a party to assume full responsibility, including in the event of an event of force majeure or act of God. In other cases, it is not a matter of pure non-compliance, but compliance subject to excessive burden — a situation that also deserves a careful examination.

On the other hand, we must consider that certain obligations can be reasonably postponed as a result of force majeure, but that does not mean that the postponed obligations will be forgiven or should not be performed later. It is imperative to carry out a case-by-case analysis of the relationship impacted by the moment so that the company is aware of the risks to which it is subject to, possible alternatives and mitigating arrangements and thus can make an informed decision.

To the extent possible, the parties shall seek the renegotiation and revision of the contract, leaving termination as a last remedy. This is because, in the event of a dispute, we understand that the judges and arbitrators will take into account the parties’ good faith in seeking an intermediate solution under the circumstances.