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Update on COVID-19 including legal questions

Since the start of the COVID-19 crisis, FCI is regularly updating its member.

The first communication was on 16 March about internal measures, first changes in the global markets, highlighting some GRIF articles and important legal circulars for this challenging period and at the same time also highlighting the opportunities we have to see in this situation, such as taking the time to train the team, using the difficulty as leverage on what you do best… The entire article is available here.

On the 1 April, it was announced that the Executive Committee had taken the decision to postpone the Annual Meeting of 2020 to the following year, to be held in Washington DC, from 20 to 25 June 2021. The FCI Contingency plan was also presented with three levels of actions: green, orange and red phase. The contingency plan is presented by the Secretary General in a video available here. The case of force majeure as described by the GRIF was also discussed. The Executive Committee also reminds all members that Export Factors are responsible for the risk that arises from a potential default or bankruptcy of an Import Factor. The point is covered under Legal Circular 99.4. They also remind everyone about the circular 99.6, the Alternative FCI Inter-Factor Agreement, that was developed during the last financial crisis. They also remind us about the Deviation Agreement prepared recently by the Legal Committee to assist members as we have now entered the orange phase. Finally, FCI Secretary General encourage all parties to be as impartial as possible, act in good faith and provide the necessary care for the well-being and preservation of our network. The entire circular 5235 can be found on the private net.

On the 15 April, the circular 5240 presents responses to enquiries about the impact of COVID-19 on our business. Those queries were addressed by email to FCI Secretariat or asked during one of the webinar on the Impact of COVID-19 outbreak on Supply Chains. Prior to answering the questions, the Legal Committee wishes to emphasize that members must always act in good faith and provide mutual support to each other (as required by Article 11 of GRIF). They also emphasize some point of the recent Guidance on Force Majeure (“FM”) from the International Chamber of Commerce:

  1. Need for a written clause (or terms of another document incorporated by inference).
  2. If Force Majeure (FM) is “called” then the caller is relieved of its duty to perform (e.g. payment) during the period that the FM event prevents contractual performance. I.e. that duty is just suspended.
  3. In the absence of a force majeure clause:

a) the law applicable to the contract applies,

b) concept of FM is not universally recognised,

c) different solutions in different jurisdictions. 

FCI cannot stress enough that there is no one general law applicable worldwide relating to Force Majeure situations or to decide whether the current Covid19 pandemic entitles debtors to refuse to pay on the contractual due date. The answer can only be decided after: 

1) Carefully examining the supply contract to see if it contains a force majeure clause. If answer “yes” then checking:

a) if it covers the present pandemic; and if so

b) finding out what rights it gives to delay payment.

2) If there is no such clause then you need to know whether the applicable law covers the present situation and the rights it gives and whether it covers the present pandemic.

3) To undertake step 2 above you will need to find out which country’s law applies to the supply contract and this could be that of:

a) the Supplier; or

b) the debtor; or

c) a third country chosen by the parties.

As a general rule if force majeure is raised by a debtor, as a ground for non-payment of a receivable, then this is a dispute within Article 27 of the GRIF and the procedures under that Article must be followed.

The following questions are answered in the circular 5240:

  1. Can an Import Factor arbitrarily and unilaterally alter the due date of the invoice, without the consent of the Export Factor?
  2. Can the Import Factor raise a dispute on its own?
  3. What happens if Force Majeure is claimed by the Debtor?
  4. How do you decide the new date for a PUA if a legitimate force majeure defence is raised?
  5. What happens if there is no specific force majeure clause, can the debtor also request for extension of payment terms under the general legal concept of “contract frustration”?
  6. How is Credit Insurance affected?