Coronavirus: How Can Luxury Brands Manage Commercial Risk Across Asia And Europe?

Author:Ms Lesley Timms, Graham Webster, Polly Chu, Sharon Whitehouse, Mabel Lui and Matilde Rota
Profession:Withers LLP

It has been over a month since the Chinese government announced the outbreak of COVID-19 in the city of Wuhan, and it remains a top story in global news.

This week has seen the spread of the virus into Europe and in particular, into Italy where several small towns in Lombardy and Veneto have been placed in lockdown.

The repercussions of this on businesses and the world economy are already proving to be of significant concern. The lockdown of towns and cancellation of large events means businesses cannot operate as usual. Governments around the world have started to put in place measures to prevent the spread of the virus, and they have also been putting in place measures to protect businesses. For example, the Chinese government has already issued over 1600 'force majeure' certificates purporting to excuse businesses for non-compliance with their contractual obligations. This has left many people wondering whether parties really can rely on the virus outbreak to cancel their contracts without consequence, and for those who have been let down by suppliers, whether they will be left without recourse.

Force majeure operates differently throughout the world. For example, common law jurisdictions (such as the UK) have different rules and considerations compared to civil law jurisdictions (such as Italy). Whether you can rely on, or dispute a party's reliance on, a force majeure clause will depend very much therefore on where in the world the parties do business and the terms of the contract (if any) entered into between them.

Withers has a long history of looking after Italian interests in the UK and vice versa, particularly in the luxury brands sector which is heavily reliant on both the Chinese manufacturing industry and Asia's buying power at the consumer level (in 2018 China's luxury goods retail sales value was 111 billion euros). The impact on luxury brands is therefore likely to be significant with some recent reports suggesting that the industry could suffer losses of up to $43 billion in 2020.

Supply chain issues are front of mind for many businesses and in particular whether, and how, a business or individual might be able to avail itself of a force majeure claim (or defend a counterparty's reliance on it) in England or Italy. We have produced a series of other articles for other industry specific concerns, links to which feature at the end of this article.

The position in the UK

Unlike civil law jurisdictions, there is no general...

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