Law in a Time of Corona: Global Pandemic, Supply Chain Disruption and Portents for 'Operationally-Linked (but) Legally Separate' Contracts

• Autore: Deji Olatoye
• Carica: Indipendent Researcher
• Pagine: 171-237

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hps://doi.org/10.6092/issn.2531‐6133/14076

Received: 27 Jan. 2021 | Accepted: 14 Febr. 2021 | Published: 20 Dec. 2021

A

Law in a Time of Corona: Global Pandemic, Supply Chain

Disrupon and Portents for “Operaonally‐Linked (but)

Legally Separate” Contracts

D

EJI

O

LATOYE

Deji Olatoye is Partner at The Lodt Law Offices, Lagos, Nigeria. An independent researcher whose

writing is informed by his experience as a practitioner, his interests include corporate

governance, ESG, law and economics as well as law in diverse strategic business

contexts–transactional, institutional and market. He was awarded the Deloitte Scholarship in

Corporate Governance by International Corporate GovernanceNetwork, UK, in 2013. Deji Olatoye

holds an LL.B from University of Lagos, Nigeria, and a Master of Corporate Law (MCL) from

University of Cambridge. Gratitude to The Lodt Law Offices for supporting the research for this

article with time and resources.

@deji.olatoye@cantab.net; deji.olatoye@thelodt.net

ID 0000-0001-5747-4694

ABSTRACT

The novel coronavirus (Covid-19) pandemic has resulted in the disruption of activities in major

centres of global production, with adverse portents for contractual obligations across global

supply chains. The global pervasiveness and dynamic propagation of the risks arising from

contractual failures provides an opportunity to reconsider the nature and impact of mechanisms

for excusing failure to perform contractual obligations under adverse circumstances (Excuse).

Such mechanisms include those found in the general law (for example, frustration in common

law and analogous doctrines in civil law traditions) and contractual clauses (for example, Force

Majeure and hardship clauses). Establishing extant rights and obligations under current

contracts may provide only limited illumination on how parties will address these failures.

Principles in economics of contract (e.g. incomplete contract and transaction cost theories) and

the commercial reality of global supply chains both suggest that parties tend to lean towards

contract- and relationship-saving adjustments, rather than strict enforcement of rights.

Therefore, this article analyses the doctrinal and contractual regimes of Excuse with a view to

assessing their respective scopes for transaction and relationship saving. It also highlights the

peculiar nature of supply chain relationships wherein exchange partners enter into a sequence of

dyadic relationships aimed at delivering a good or service to the end user. The tension between

that operational logic and the legal principle of privity of contract makes these relationships –

undergirded as they are by what we call “operationally-linked (but) legally separate” (O.L.L.S.)

contracts – peculiarly vulnerable to mismatches in their Excuse regimes.

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Mismatches occur where failure to perform a determinant contract is more easily or much earlier

excusable than in a dependent contract within the same chain operation. This may, in turn,

exacerbate risks of supply chain disruptions in a pandemic scenario. The article designs a

framework by which the doctrine-contract complex in the regimes may be used to test the

dynamic scenarios of a global pandemic for the purpose of scanning for such mismatches. This

framework will be useful in both post-event circumstances, as parties embark on

relationship-saving negotiations, and in designing ex ante risk management measures. Through

the understanding of the peculiarity of supply chain relationships and the O.L.L.S. contracts, this

article also proposes to open up new directions in which the insights therefrom might be useful.

An example suggested and prefatorily explored in this article is in the “governance beyond

privity” conundrum in the context of supply chain disruption. Another is its potential

contribution to the emerging multifactorial approach to determining frustration of contract in

some common law courts.

KEYWORDS

Contract Law; ForceMajeure; Supply Chain; Covid-19; Incomplete Contract

JEL CODES

K120, L140, D860

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TABLE OF CONTENTS

Introduction ............................................ 174

1. The Economics and Commercial reality of Parties’ Behaviour Under Disruptive

Circumstances.......................................... 181

1.1. Economics of Disruptive Circumstance . . . . . . . . . . . . . . . . . . . . . . . 181

1.2. Supply Chain Disruption and Risk Management . . . . . . . . . . . . . . . . . . 186

2. Failureto Perform – the Legal Regimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

2.1. Excuse Under the Doctrines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

2.1.1. Common law: Defining the Supervening Effects Under a Unified Structure . 192

2.1.2. Common Law: Closed Approach to Legal Consequences . . . . . . . . . . . . 194

2.1.3. Civil Law: Defining the Supervening Effects Under a Dual Structure . . . . . 196

2.1.4. Civil Law – Open Approach to Legal Consequences . . . . . . . . . . . . . . 197

2.1.5. Common Law – Civil Law Comparison . . . . . . . . . . . . . . . . . . . . . 198

2.1.6. Multifactorial Approach: A Contextual Turn in Common Law Excuse? . . . . 201

2.2. Excuse in Contractual Clauses .............................. 205

2.2.1 Force Majeure and Hardship clauses: The hypothesis . . . . . . . . . . . . . . 206

2.2.1.a. Force Majeure clauses - “epidemic” item and problem of

indeterminacy........................... 206

2.2.1.b. Hardship clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . 210

2.2.2. Force Majeure and Hardship clauses: The regime . . . . . . . . . . . . . . . . 212

2.2.3. Does availability of a contractual ground obviate application of doctrinal

groundsforExcuse? ............................... 212

3. Practical Application in the Circumstances of Pandemic-Induced SCD . . . . . . . . . . . . 214

3.1. Bases of our frameworkof analysis . . . . . . . . . . . . . . . . . . . . . . . . . 214

3.1.1. The Doctrine-Contract complex . . . . . . . . . . . . . . . . . . . . . . . . 214

3.1.2. The nature of “operationally-linked (but) legally separate” [OLLS] . . . . . 215

3.1.3. Peculiar patterns of risk propagation in a pandemic . . . . . . . . . . . . . 217

3.2. Developing the framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218

3.3. Dimensioning the SCD impacts of a Pandemic: Four Scenarios . . . . . . . . . . 219

3.4. Dimensioning the SCD impacts of a Pandemic: Two mismatches . . . . . . . . . 221

3.4.1. Mismatch of Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221

3.4.2.MismatchofTime ................................ 223

3.5. Essaying use cases for the framework . . . . . . . . . . . . . . . . . . . . . . . 229

3.5.1. Managing Excuse mismatches in O.L.L.S. contracts: borrowing from

“contract boundary- spanning” governance mechanisms . . . . . . . . . . . 229

3.5.2. Multifactorial analysis in cases of frustration: peculiarities of O.L.L.S.

contracts as possible factor . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Conclusion ............................................. 236

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