Today’s global economy is facing unprecedented challenges and many firms are in the business of survival as a consequence of the Covid-19 outbreak. While some Asian countries are starting to show signs of emerging from lockdown, it is nonetheless a grim and trite recital to acknowledge that many Asian countries were heavily affected in the early stages of the global crisis. According to official figures, China’s GDP recorded an unprecedented 6.8 percent year-on-year decline in the first quarter of 2020. Being at the geographic forefront of the current crisis, our Asian offices have been both advising and counseling numerous clients with their commercial matters and arrangements that have faced interference as a result of the Covid-19 outbreak.
We would like to share our experience of handling Covid-19 in Asia, and lessons learned.
Lesson 1: Avoiding escalation of disputes
It is our experience, with rare exception, that when all businesses are operating in either challenging times or in a race for survival, it is in the best interests of the parties to avoid escalation of disputes through sensible negotiation and the avoidance of formal dispute resolution to the extent possible. For existing commercial contracts that have been prejudiced or jeopardized at the present time, but which nonetheless have long-term viability, the parties should consider entering transitional arrangements (such as the granting of mutual time extensions in respect of their performance or other contractual obligations) in order to maintain the contract as well as the business relationship and good will between the parties. This is particularly important for shipbuilding contracts in China, where shipyards have experienced difficulties in delivering ships on time as a result of the crisis.
Lesson 2: Addressing future risks
For contracts that remain in the pre-execution negotiation stage, it is important that the parties consider inserting clauses to address the foreseeable risks and long-run disruptions that the current political, social, and economic environment presents. By way of example, we have received numerous enquiries in relation to the inclusion of charterparty terms to address issues such as trade limits, port closures, and various health and safety issues. We have, in addition, received queries relating to the drafting, interpretation and application of force majeure clauses in different contexts.
Lesson 3: Adapt and recover
While the current global crisis is unprecedented, Asian countries have had the experience of dealing with the SARS crisis in 2003 and the wider financial crisis in 2008. Many companies have learnt from the past and demonstrated a degree of acumen in planning for the future. It follows that many Asian companies have entered the current crisis with the benefit of more robust response mechanisms for dealing with a pandemic than has historically been the case. This has allowed these companies to manage better the myriad of difficulties Covid-19 has presented. Many shipping companies, which were badly impacted by the 2008 financial crisis, have financially and operationally evolved with the introduction of more robust liquidity and risks management metrics. As a result, many Chinese shipowners and shipyards are quickly recovering as the local situation improves.
In Hong Kong, there is a high degree of public health awareness, again made more prominent following the lessons of SARS in 2003. Citizens are accustomed to the wearing of masks in public and private as an aid to the prevention of the transmission of the flu and other communicable diseases. Since the very beginning of the Covid-19 outbreak, the Hong Kong government has permitted the public sector to “work from home” for long durations, and this approach has also been adopted by many private companies. Major public and court facilities have closed or had their services reduced through precautionary measures. As a result, and notwithstanding the immensely dense population metrics in Hong Kong, the region has maintained an enviably low number of confirmed Covid-19 cases. There is little doubt that community awareness, business acumen, and a positive attitude to the steps required to manage the outbreak properly have greatly assisted in minimizing the impact of Covid-19 in Hong Kong in terms of both the economy and daily lives.
It is difficult to prognosticate when normality will return or when we will adjust to a new normal. However, with the concerted efforts of industry and community vigilance, we are cautiously optimistic that Asian markets will regain the positive climate they previously enjoyed in the near future. We are confident that the experiences we have gained over recent years, and through our early and proactive response to the pandemic, will place our Asian offices in a market-leading position to provide prompt and practical advice to our global clients.