10.6092/issn.2531-6133/14076
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. 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.
application/pdf
2531-6133
14076
2
en
Deji Olatoye
https://creativecommons.org/licenses/by/4.0
University of Bologna Law Review
Incomplete Contract
Law in a Time of Corona: Global Pandemic, Supply Chain Disruption and Portents for “Operationally‐Linked (but) Legally Separate” Contracts
Text.Serial.Journal
https://bolognalawreview.unibo.it/
6
Articles & Essays
2021-12-20
2021-12-17
2021-11-10
2021-12-20
171-238
UBLR
Deji Olatoye
2021/12/20
10.6092/issn.2531-6133/14076
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Indipendent Researcher
2531-6133
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Incomplete Contract
en
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Law in a Time of Corona: Global Pandemic, Supply Chain Disruption and Portents for “Operationally‐Linked (but) Legally Separate” Contracts
https://bolognalawreview.unibo.it/article/download/14076/13520
6
llVOLUME 6                                 llISSUE 2                      ARTICLES & ESSAYS



                          UNIVERSITY OF BOLOGNA LAW REVIEW
                         https://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
        Disruption and Portents for “Operationally‐Linked (but)
                     Legally Separate” Contracts


                                         DEJI OLATOYE
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 Governance Network, 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.




                                               171
llVOLUME 6                                  llISSUE 2                         ARTICLES & ESSAYS



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; Force Majeure; Supply Chain; Covid-19; Incomplete Contract


                                             JEL CODES
                                           K120, L140, D860




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llVOLUME 6                                      llISSUE 2                          ARTICLES & ESSAYS



                                          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. Failure to 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
                  grounds for Excuse? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       212
3. Practical Application in the Circumstances of Pandemic-Induced SCD . . . . . . . . . . . .             214
         3.1. Bases of our framework of 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. Mismatch of Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .       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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                                        LAW IN A TIME OF CORONA


      INTRODUCTION

The World Health Organisation [hereinafter W.H.O.] declared the novel coronavirus
disease, Covid-19, a pandemic in the second week of March 2020.1 This follows the spread
of the epidemic from its ground zero in the Chinese city of Wuhan to about one hundred
and thirteen other countries. At the time of that declaration, one hundred and eighteen
thousand cases had been recorded, resulting in four thousand two hundred and
ninety-one fatalities.         By the end of March 2020, fourteen of the world’s leading
economies in gross domestic product terms2 were on the list of the leading 20 hubs of the
pandemic.3 The sweep of the pandemic portends dire situations for global production
and trade, or global value chains [hereinafter G.V.C.s]. To signalise the impact of the
pandemic on the G.V.C.s, China is a major hub in global production networks and is
responsible for twenty per cent of global trade in manufacturing intermediate products.4
Its share of input in some products, for example computers, could be even larger by far.5
          Following a rash of closures of ports of entry and effective wind-down of global
logistics, the United Nations Conference on Trade and Development [hereinafter
U.N.C.T.A.D.] predicts the impact of the pandemic on the world’s economies as follows:

            The most badly affected economies will be oil-exporting countries, but also
            other commodity exporters, which will be losing more than one percentage
            point of growth, and those with strong trade linkages to the initially shocked
            economies. Countries like Canada, Mexico and the Central American region,
            in the Americas; countries deeply inserted in the G.V.C.s of East and South
            Asia; and countries in proximity of the European Union will likely experience
            growth decelerations between 0.7 and 0.9 per cent.6


1
  W.H.O. Director-General’s opening remarks at the media briefing on COVID-19 (Mar.                      11, 2020),
  https://www.who.int/director-general/speeches/detail/who-director-general-s-opening-remarks-at-
  the-media-briefing-on-covid-19—11-march-2020 (last visited Mar. 23, 2020).
2
  World Bank Group, World Development Indicators Database, World Bank, 23 December 2019,
  https://databank.worldbank.org/data/download/GDP.pdf (last visited Mar. 23, 2020).
3
  W.H.O., Coronavirus Disease (COVID-19) Dashboard,https://covid19.who.int (monitored on Mar. 27, 2020.
  The situation deteriorated significantly in the following months, with the same dashboard monitored on
  Sept. 21, 2020, at 4.30 p.m. C.E.T., showing that the total number of cases at thirty million, nine hundred and
  forty-nine thousand, eight hundred and forty as well as nine hundred and fifty-nine thousand, one hundred
  and sixteen deaths.
4
  See U.N.C.T.A.D., Global Trade Impact of the Coronavirus (Covid-19) Epidemic’ (Mar.                     4, 2020),
  https://unctad.org/en/PublicationsLibrary/ditcinf2020d1.pdf (last visited Mar. 27, 2020).
5
  See FRED PEARCE, CONFESSIONS OF AN ECO SINNER: TRAVELS TO FIND WHERE MY STUFF COMES FROM 159-68 (2008).
6
  U.N.C.T.A.D.,      Coronavirus       shock:        a    story   of     another      global     crisis    foretold
  and     what       policymakers       should    be      doing   about      it     (Mar.             9,     2020),
  https://unctad.org/en/PublicationsLibrary/gds_tdr2019_update_coronavirus.pdf (last visited Mar.
  27, 2020).


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2021]                              UNIVERSITY OF BOLOGNA LAW REVIEW                                        [Vol. 6:2


The impact of these mega-trends will not be unpredictable at firm level. The G.V.C.s,
which represent 80% of global trade,7 have been described as “globally dispersed and
organisationally fragmented production and distribution networks.”8 These chains, or
networks, of firms dealing across national and organisational boundaries are
coordinated through models that span anything from the more hierarchical or
vertically-integrated (governed through ownership or high managerial control) to the
more horizontal (coordinated, more or less by a lead firm, through a chain of contracts).
It also embraces complex systems such as intertwined supply networks [hereinafter
I.S.N.s] defined as “interconnected [supply chains] which, in their integrity secure the
provision of society and markets with goods and services”.9 Thus, while recognising that
G.V.C.s span a broad range from multinational corporations [hereinafter M.N.C.s], at one
end, to the loosest supply chains, at the other end, supply chain in this article is used as a
catch-all for all manners of sequential, contract-based production synergies, whilst
“G.V.C.” is used when the meaning includes more hierarchical forms such as M.N.C.s.10
           Regardless of the coordination model, contracts are important to the
organisational logic of the G.V.C.s. Even M.N.C.s increasingly rely on contract-based
strategies for global production, including offshore sourcing, subcontracting and
licensing.11 Meanwhile, besides global producers, logistics companies that facilitate
supply chain activities now commonly pursue operational efficiency through
contract-based strategies such as alliances, slot-sharing, dedicated terminals, and
performance-based pricing contracts.12 In the light of these complex linkages, any major
disruption to production and logistical activities will, through backwards and forward
risk propagation, adversely affect the ability of firms to perform interlinked contracts up
and down the chains.




7
   See U.N.C.T.A.D., World Investment Report: Global Value Chains – Investment and Trade for Development, at xxii,
   U.N.C.T.A.D./WIR/2013, Sales No. E.13.II.D.5�� (2013).
 8
   Gary Gereffi, John Humphrey and Timothy J. Sturgeon, The Governance of Global Value Chains, in GLOBAL VALUE
   CHAINS AND DEVELOPMENT: REDEFINING THE CONTOURS OF 21ST CENTURY CAPITALISM 111-12 (2018).
 9
   Dmitry Ivanov & Alexandre Dolgui, Viability of intertwined supply networks: extending the supply chain resilience
   angles towards survivability. A position paper motivated by COVID-19 outbreak, 58 INT’L. J. PROD. RSCH. 2904, 2906
   (2020).
10
   In fact, Gereffi et al., supra note 8, have distilled five typologies of G.V.C. coordination from their analysis of
   relevant factors (See infra Section .5.2. for an overview of that analysis). See also generally Gary Gereffi, Global
   Value Chains in a Post-Washington Consensus World, in GLOBAL VALUE CHAINS AND DEVELOPMENT: REDEFINING THE
   CONTOURS OF 21ST CENTURY CAPITALISM 400 (2018).
11
   See Sara U. Douglas, Stephen A. Douglas and Thomas J. Finn, The Garment Industry in the Restructuring Global
   Economy, in GLOBAL PRODUCTION: THE APPAREL INDUSTRY IN THE PACIFIC RIM 5 (Edna Bonacich et al. eds., 1994).
12
   See generallyKum Fai Yuen & Vinh V. Thai, The Relationship between Supply Chain Integration and Operational
   Performances: A Study of Priorities and Synergies, 55 TRANSP. J. 31, 45 (2016).Citing Trevor D. Heaver, The Evolving
   Roles of Shipping Lines in International Logistics, 4 INT. J. MAR. ECON. 210 (2002).


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                                        LAW IN A TIME OF CORONA


A last notable outcome will be the loop-back of imminent massive failure of contracts
into the larger economy. The financial sector will be impacted as many of the relevant
contracts are typically underlain by financing supports. Major obligations that will be
highly strained under the circumstances include those with respect to loans and credit
support – letters of credit, overdrafts and term loans supporting working capital and
procurement – as well as insurance of logistical activities, etc.. This may lead to cutback
in the financial sector, with a spiralling effect on entire financial markets and broader
economies.
          Since the eye of the ripple will be the risk of failure of contracts, this is one key
area that will engage the attention of commercial actors and their advisers in the coming
months. We expect frenetic efforts to review relevant provisions of current contracts, with
a view to ascertaining extant rights and obligations that may be affected or potentially
triggered by failure to perform. Such efforts would also entail developing and assessing
options for risk-avoidance, if possible, or risk-mitigation.
          Most legal regimes recognise, to different degrees, the importance of relieving
parties of contractual obligations where a supervening event has disrupted performance.
Practices in contract drafting have both recognised and progressively developed terms
from these doctrinal bases for excusing failure to perform [hereinafter Excuse].13
Therefore, it is tempting to assume that most failed contractual obligations in the
current circumstances of a global pandemic would be easily discharged. However, this
article takes off from a different assumption. Outcomes will turn on the interplay of two
factors. The first factor is the attitude of the parties to disruptive events in the larger
context of their relationship. The other is the approach of the applicable regime –
doctrinal or contractual – to the issues of defining the Excuse-making event, or its effect,
and assigning legal consequence to it.
          Different legal systems define the events differently, based on degrees of
supervening effect that stretch from impossibility to mere commercial hardship. The
latter, which arises from change of circumstance, is treated in some jurisdictions as a
separate doctrine with distinct legal consequences (and does not usually support a case
for immediate discharge).              Worse, in some other jurisdictions, effects of a more
commercial nature do not constitute a different doctrine and hardly provide ground for
discharge at all.14 This diversity makes the factual circumstances of businesses affected

13
   See infra note 37 for discussion of the distinction between uncertainties and ordinary risks and infra note 41
   on how these are reflected in contractual practices.
14
   This disparity in legal consequences explains our preference for the term “excusing failure to perform”
   (“Excuse”) over the more common term, contract avoidance, which tends to connote only a terminal
   consequence.


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2021]                             UNIVERSITY OF BOLOGNA LAW REVIEW                                       [Vol. 6:2


by Covid-19 an important factor. Those circumstances are themselves dynamic, so that,
in a single jurisdiction, as the nature of the impact changes, it creates different degrees
of supervening effect, thus triggering different grounds for Excuse as time goes on.
           Before outlining the progression of the article, it bears justifying to centralise
the law of contract in the examination of pandemic-linked disruption of supply chain
performance. Eller has argued that the “dominant epistemology and social imaginary” of
the law of contract is not a good fit for accounting for the role of law in G.V.C..15 Thus, he
has highlighted the limits of the “privileged lens” of contract law (a holdover from
previous analyses of “contractual networks”16 ), even while acknowledging the central
role of contract as a building block of the G.V.C..17 At its core, his argument is that
notions such as common purpose and reciprocity, which underlie contractual expectations,
do not fully explain the legal nature of commitment by all categories of participants
across the entirety of the chain. In his view, relative to the situation at the core of the
G.V.C. – comprising the lead firm and the “first tier” participants – these notions grow
weaker as we approach the periphery, or the informal tiers of participants. At the
periphery, explains Eller, participation is better underlain by the factor of the production
logic of the chain itself.18
           Indeed, the notable privileging of contract law in emerging analyses of the G.V.C.
has been reflected in scholarships that are directed at private governance of chain-wide
risks.19     These analyses are typically problematised – and therefore enriched – by
consideration of the challenges that the fundamental principle of privity of contract
poses to maintaining the span of control required in such an endeavour (“governance
beyond privity”20 ). Typical risks in concern include production interruptions (which
may be considered internal to the chain operation), media exposure, reputational risks,
litigation threats, etc. (which arise from externalities).21


15
   Klaas Hendrik Eller, Is “Global Value Chain” a Legal Concept? Situating Contract Law in Discourses Around Global
   Production, 16 EUR. REV. CONT. L. 3, 12-3 (2020).
16
   Id. at 14.
17
   Id. at 3.
18
   Id. at 15.
19
   See, e.g., for scholarships taking this approach: Kishanthi Parella, Reforming the Global Value Chain through
   Transnational Private Regulation, 12 S.C. J. INT’L L. & BUS. 71 (2015). Kevin Sobel-Read et al., Recalibrating
   Contract Law: Choses in Action, Global Value Chains and the Enforcement of Obligations Outside of Privity, 93 TUL.
   L. REV. 1 (2018). Jaakko Salminen, Towards a Genealogy and Typology of Governance Through Contract Beyond
   Privity, 16 EUR. REV. CONT. L. 25 (2020). But see, e.g., Frederick Mayer & Gary Gereffi, Regulation and Economic
   Globalization: Prospects and Limits of Private Governance, in GLOBAL VALUE CHAINS AND DEVELOPMENT: REDEFINING
   THE CONTOURS OF 21ST CENTURY CAPITALISM 253 (2018) (stressing, through theoretical argumentation and
   empirical evidence, the “significant limits” of private governance in providing adequate governance
   capacity for the global economy).
20
   Salminen, supra note 19.
21
   See Parella, supra note 19, at 83 (the classification into “internal to operation” and “externalities” is ours).


                                                        177
                                        LAW IN A TIME OF CORONA


Eller’s view is that externalities in particular “are outside of the dominant frameworks of
contract in its institutional economic reading.”22 Having regard to this understanding,
he takes the view that the “normative and behavioural regularities” that underlie G.V.C.s
operate in a milieu of political economy that is broader than that under which the
centrality of contract law is fostered, the latter being characterised by elements such as
private autonomy and privatisation of enforcement that lack “social embeddedness.”23
          There are reasons to both critique Eller’s thesis broadly and justify why, in any
case, its scepticism about the analytical importance of contract law is not relevant to our
own purpose in this article. Firstly, contract law itself is not impervious to the social
environment in which commercial actors generally transact business – whether at micro
(relational) or macro (market) level. This is equally applicable to contract law in the
context of the G.V.C.. The norm-shaping role of private governance – whether it be in
enabling, constituting or regulating the G.V.C.24 – is only one dimension of the
relationship between contract law and the G.V.C.. There is equally a backward loop
through which G.V.C. relationships and their milieus become norm-shaping, thus feeding
into new ideas of what contract means within the G.V.C. setting. The importance of this
second dimension will be underscored in various ways in this article. At relational levels,
there is the “course of dealing” principle that is a valuable tool in judicial determination
in the area of interpretation of contract.25 Trade usage or custom plays a similar role in
market settings.26         Meanwhile, rules of the lex mercatoria are an example of broad
institutional recognition of the norm-shaping acts of commercial actors.27                                    At
institutional levels, the old English court of equity has been cited as an example of
judicial recognition of the commercial, and perforce social context of contract.28 That
these contractual norms are private does not mean that they are not social (or “socially
embedded”). It may simply mean that they are not public (yet). In any case, the typical
trajectory is for them to mature towards consideration for public recognition through
codification29 or judicial determination.


22
   Eller, supra note 15, at 17.
23
   Id.
24
   See Klaas Hendrik Eller, Transnational Contract Law, in Oxford Handbook of Transnational Law (Peer
   Zumbansen ed., Oxford: OUP 2020) (forthcoming 2020).
25
   See infra note 51.
26
   See infra text accompanying notes 45, 151 & note 51.
27
   See infra text accompanying note 151.
28
   See infra note 149 and accompanying text.
29
   See, e.g., Nellie Eunsoo Choi�, Contracts with Open or Missing Terms under the Uniform Commercial Code and the
   Common Law: A Proposal for Unification, 103 COLUMBIA L. REV. 50, 51 (2003). (“[U.C.C. §1-205(3)] also provides
   that trade usage and the parties’ in “course of dealing” may aid in the interpretation of contractual terms”,
   referring to a provision of Uniform Commercial Code, U.C.C. (Am. Law Inst. & Unif. Law Comm’n 1977), a
   model law that could be adopted as a statute by states in the U.S.).


                                                      178
2021]                             UNIVERSITY OF BOLOGNA LAW REVIEW                 [Vol. 6:2


Secondly, as would have been noted in our above classification of Parella’s enumeration
of the risks facing G.V.C.s,30 externalities are but a class, while risks internal to G.V.C.
operations are a separate category of risks. It is our view that, regardless of the merit of
Eller’s broader thesis (to which we do not pretend that our first point above is an
exhaustive answer), the centrality of contract law stands unimpeachable in the analysis
of the latter category. Covid-19-linked supply chain disruption, which is our own focus,
falls in the latter category.
             In this article, Part 1 explores economic explanations for the attitude of
commercial actors to unplanned, disruptive developments. Following that, it explores
evidence in the reality of how exchange partners in supply chain relationships (which
are typically structured as long-term and business-to-business [hereinafter B2B]
relationships) address what is referred to, in the literature, as supply chain disruption
[hereinafter S.C.D.]. We find that the literature on both economics of contract and supply
chain management supports the conclusion that the stance of commercial actors tend to
be contract- or relationship-saving in such circumstances.
             Part 2 is an overview of the doctrinal and contractual regimes of Excuse. While
centring on the common law approaches (English and some other countries of the
Commonwealth, as well as the U.S.), it draws comparison with the law in key civil law
jurisdictions (French and German).             It then follows with an insight into how
contemporary contract drafting practices have advanced the area, using the examples of
the Force Majeure and hardship clauses commonly found in international commercial
contracts. The comparative analysis adopted in studying the legal regimes complements
the interdisciplinary approach adopted in the article broadly by allowing us to explore
how the structures and outcomes of these Excuse regimes support what we have
established as the contract- and relationship-saving objectives of the parties.
             In our analysis, we examine how each regime (i) defines the supervening event
and especially the operative consequence (supervening effect) that it must have on
performance (or hypothesis, in contract drafting) and (ii) allocates legal consequence to
them (or, the regime). On the doctrinal grounds in particular, we find that jurisdictions
differ in the flexibility or expansiveness of their approaches to the event-defining
exercise and the strictness or restrictiveness of their attitudes to legal consequences.
Regimes that tend towards the more flexible or expansive categories – and these are the
civil law jurisdictions, doctrinally speaking, as well as contemporary contractual regimes
– usually have a dual approach that allocate different consequences to the stricter and
the flexible grounds for Excuse. Thus, not only are they more likely to permit events with
30
     See supra text accompanying note 19.


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                                LAW IN A TIME OF CORONA


operative consequences of a more commercial nature under the flexible grounds, they
also offer better opportunity for contract- and relationship-saving through adjustments
by courts or the parties. While noting the limitations of the common law tradition in this
regard, we are able to comment on an emergent development in the interpretation of
contracts by some common law courts – to wit, the multifactorial approach – that appear
to be opening up an opportunity for a more flexible outlook on the doctrine of
frustration, even if we also draw attention to the current limitations of that approach.
        In Part 3, we utilise insights from the foregoing analysis of the doctrinal and
contractual grounds to formulate a doctrine-contract complex that captures the broad
range of possible supervening effects excusable under the diverse regimes and applicable
to a contractual relationship. We then integrate this with other insights – including
those from a recent simulative study on the propagation of pandemic risks in the light of
Covid-19 and our conceptual iteration of the nature of what we call “operationally-linked
(but) legally separate” [hereinafter O.L.L.S.] – to formulate possible scenarios of supply
chain contract failures under such dynamic and fast-evolving factual circumstances. In
this regard, we match four such scenarios to the contract-doctrine complex to highlight
how certain mismatches in the Excuse regimes that are applicable to the O.L.L.S.
contracts could render the supply chain more vulnerable to S.C.D.. This framework could
be useful in early review of contracts and in managing S.C.D. in a post-event situation
such as that arising in the wake of Covid-19. Equally, it could be helpful in enhancing ex
ante risk management measures in the supply chain – such as those built around
resilience and other system safeguard measures against S.C.D.. Additionally, it could
illuminate some factors that may come up for consideration by a court applying the
multifactorial approach in the peculiar context of supply chain contracts.
        In the conclusions, we reiterate the insights gained from our analysis and their
significance for supply chain risk management, including in helping to further the
closure of the notable gap created by the absence of consideration of the legal regime in
the literature on supply chain risk management and G.V.C.s generally.




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       1.     THE ECONOMICS AND COMMERCIAL REALITY OF PARTIES’
       BEHAVIOUR UNDER DISRUPTIVE CIRCUMSTANCES

     1.1. ECONOMICS OF DISRUPTIVE CIRCUMSTANCE

There is sizable literature on the economic explanation of the legal regimes applicable
to impossibility cases, especially regarding the optimal allocation of risks under different
Excuse regimes.31 However, our own focus is on the economic explanation of the attitude
of commercial actors confronted by disruptive circumstances and how these are reflected
in, shaped by or, have in turn shaped legal regimes.
            By the very nature of the current crisis, its resolutions will be fundamentally
different from that of the last major, global economic crisis. The financial crisis circa
2008, stemming as it did from the financial market, required interventions that are more
broadly systemic and centrally coordinated by collective institutions (such as the central
banks). Monetary policies through which central banks coordinate the market have
historically been in the shadow of Walrasian theory of equilibriums and pricing,32 or
what has been called “monetary Walrasianism”.33 In the circumstance of a crisis that
threatens financial stability, responses are more effective when applied on a systemic
rather than idiosyncratic basis, even for controversial measures such as a bailout.34
However, crises precipitated by the current pandemic will be different. The eye of the
storm will be the failure of contracts at firm level. Under the circumstance, the bargain
of economic actors will be hashed out at bilateral levels.35 Therefore, post-Walrasian
theories of contract offer better insight on the analysis of the nature of the problems and
prediction of what those actors and institutions would do. The problems presented by
supervening events for which the parties did not, and could not, have prepared emerge
in the nature of radical upsets, or what Frank Knight has identified as uncertainties, as

31
   See, e.g., Richard A. Posner & Andrew M. Rosenfield, Impossibility and Related Doctrines in Contract Law: An
   Economic Analysis, 6 J. L. STUD. 83 (1977). Marta Cenini et al., Law and economics: The comparative law and
   economics of frustration in contracts, in UNEXPECTED CIRCMUSTANCES IN EUROPEAN CONTRACT LAW 33 (Ewoud
   Hondius & Hans Christoph Grigoleit eds., 2011). For an economic analysis of the 2016 French reforms on
   the law of changed circumstance, and a comparison to the English law, see Mitja Kovac, Frustration of Purpose
   and the French Contract Law reform: The challenge to the international commercial attractiveness of English law?, 25
   MAASTRICHT J. EUR. L. 288 (2018).
32
   LEON WALRAS, ELEMENTS OF THEORETICAL ECONOMICS OR THE THEORY OF SOCIAL WEALTH (Donald A. Walker & Jan
   van Daal trans. & eds., Cambridge Univ. Press 2014) (1896).
33
   See PERRY MEHRLING, THE NEW LOMBARD STREET: HOW THE FED BECAME THE DEALER OF LAST RESORT 60 (Princeton
   Univ. Press 2011).
34
   See generally Javier Bianchi, Efficient Bailout?, 106 AM. ECON. REV. 3607 (2016).
35
   This is not to suggest that centralised intervention by way of contract regulation cannot be one of the
   ultimate outcomes. Examples of current developments along this line are some of those to which reference
   is made later in this article, including the Chinese “Force majeure certificate” (see infra Section 2.2.1.a.),
   progressive development through the lex mercatoria (see infra note 46 for some contemporary examples)
   and even shift in judicial attitudes such as the rise of multifactorial approach to the doctrine of frustration
   in some common law courts (see infra Section 2.1.6).
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distinct from ordinary risks.36 The latter contingencies are of a different, simpler degree,
for which the parties could make ex ante provisions.37                        The problem is also to be
distinguished from those explained by Incentive Theory, in which the relevant constraint
is information asymmetry between the contracting parties (whether with respect to the
accuracy of ex ante information or hazard of ex post behaviour) and that are addressable
by relevant incentives.38 Risks explained by Incentive Theory are therefore endogenous to
the contracting parties (what we might refer to as the “state of the mind” of the said
parties).     However, for the cases in concern, the relevant problems emerge in the
circumstance of incomplete information about the “state of the world” in which the
contract would be performed or enforced. This assumes the bounded rationality of either
the contracting parties themselves or the external institution of collective coordination
(coordination, that is, by an external institution, such as by the court to determine rights
and to enforce performance). In the latter respect, the contract, or a contractual term, is
considered “contractible” and therefore enforceable only if it is verifiable by that
external institution. In Incomplete Contract Theory [hereinafter I.C.T.], which assumes the

36
    FRANK KNIGHT, RISK, UNCERTAINTY AND PROFIT (1921).
37
   Ex ante provisions could be made for these contingencies because, although often destabilising, they are
   largely foreseeable and their impacts relatively ascertainable even where they are exogenous and arise from
   cyclical events in the macroeconomic environment. A typical example is price escalation due to inflation
   or currency fluctuation. See KEITH S. ROSENN, LAW AND INFLATION 112 (1982). (“Much of the doctrinal basis
   for judicial revision of contracts that have become unduly onerous revolves around unforeseeability. But in
   modern economies inflation is hardly unforeseeable. Indeed, inflation has become the norm, and monetary
   stability the exception”.) Another external trigger may be change in relevant law. Other such contingencies
   arise out of change in the internal affairs, usually the financial conditions, of the counterparty or the target
   of a transaction or the ripening of previously envisaged although undetermined fiscal obligations or legal
   risks. Whatever may be the case, a method may be devised, from an ex ante position, to adjust nominal pricing
   and other parameters of the transaction or to definitively allocate the risks of the event or otherwise bring
   about some stability and correct the upset. See infra note 41 for a highlight of some contractual mechanisms
   aimed at addressing contingencies of this nature.
38
   Incentive Theory assumes substantial or unbounded rationality (Savage rationality) in favour of the
   contracting parties, so that they have capability to substantially hazard and provide for all probabilities
   since relevant information is observable (at least one of them has complete information on each variable
   and all that is left, in view of possible information asymmetry, is to deploy a system of incentives to
   forestall opportunism by the parties). Information is equally verifiable since collective institutions of ex
   post resolution are fully informed of all factors that are relevant to the determination of the cases. For a
   discussion of the key arguments of Incentive Theory, Incomplete Contract Theory and Transaction Cost
   Theory, see Eric Brousseau, Jean-Michel Glachant & M’Hand Fares, The economics of contracts and the renewal
   of economics, in THE ECONOMICS OF CONTRACT: THEORIES AND APPLICATION 3, 3 – 30 (Eric Brousseau & Jean-Michel
   Glachant eds., 2004). For foundational literature on these theories, see the following: LEONARD J. SAVAGE,
   THE FOUNDATION OF STATISTICS (2nd. ed., Dover Publications 1972) (1954) on unbounded rationality, which
   describes decision-making that assumes the decision-maker to be apprised of the two key variables relevant
   to decision-making, to wit: (i) the possible states of the world, and (ii) the consequences of each decision for
   each possible state of the world; George A. Akerlof, The Market for Lemons: Quality, Uncertainty and the Market
   Mechanism, 84 Q. J. ECON. 488 (1970) on adverse selection risks in Incentive Theory; KENNETH J. ARROW, ESSAYS
   IN THE THEORY OF RISK-BEARING (1971) on moral hazard risks in Incentive Theory; OLIVER E. WILLIAMSON, THE
   ECONOMIC INSTITUTIONS OF CAPITALISM: FIRMS, MARKETS, RELATIONAL CONTRACTING (1985).(For transaction cost);
   Oliver Hart & John Moore, Incomplete Contract and Renegotiation 56 Econometrica: J. Econ. Soc’Y 755 (1988)
   for incomplete contract.


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bounded rationality of the court, the relevant constraint is that regarding verifiability by
the court. The court’s ability to verify, ex post, relevant variables is impaired because the
parties cannot make provisions to cover remote contingencies that impact performance,
such contingencies not being predictable with reasonable certainty. Even where such
contingencies are foreseeable, their ramifications may be difficult to fully grasp so that,
regardless of the observability of their incidence by one or both of the parties, variables
based on ex ante allocation of risks attendant thereon are not properly verifiable by the
court. In Transaction Cost Theory [hereinafter T.C.T.], in which bounded rationality of the
contracting parties is the assumption, the problem of ex ante observability of the
contingencies by the parties or ex post verifiability by the courts may be possible, but
only at a prohibitive cost. Thus, efforts to go at length to make ex ante explicit provision
in the circumstance, if at all possible, may be prevented by “front-end” costs that are not
justified by ex ante incentive (such costs including those in rent dissipation, negotiation
and measurement).39 Similarly, “back-end” costs may make economically impractical
any effort by the party to prove the relevant contingency to the court for the purpose of
verification. These transaction costs have a directly proportional relationship with the
level of uncertainty, thus taking on a very significant role in long-term contracts such as
those underpinning supply chains.40 I.C.T. and T.C.T. help illuminate the issues arising
from supervening events in, at least, two areas. Firstly, an understanding of the nature of
the constraint explains the difficulty that parties face in reducing the supervening
events into definitively allocated risks, unlike in other cases of predictable changes for
which they are able to make provisions by way of, say stabilisation or review clauses.41

39
   Benjamin Klein, The role of incomplete contracts in self-enforcing relationships, in THE ECONOMICS OF CONTRACT:
   THEORIES AND APPLICATION 60 - 1 (Eric Brousseau & Jean-Michel Glachant eds., 2002).
40
   Id. Robert E. Scott & George G. Triantis, Incomplete Contract and the Theory of Contract Design, 56 CASE W. RES. L.
   REV. 187, 190 – 91 (2005). (for a description of the “front-end” and “back-end” aspects of transaction cost).
41
   See MARCEL FONTAINE & FILIP DE LY, DRAFTING INTERNATIONAL CONTRACTS: AN ANALYSIS OF CONTRACT CLAUSES 457
   (2006). “Stabilisation clauses” was a generic term for the diverse contractual methods for “protecting the
   real value of the parties’ bargain from changes in the value of money”. See ROSENN, supra note 37, at 132.
   However, it is now more commonly restricted to clauses that seek to “freeze” the legal or fiscal regimes
   under which the contract was negotiated or otherwise correct the economic distortion resulting from any
   change in the regime. See Jenik Radon, Negotiating the “right” Petroleum Contract, in The Global Petroleum
   Context: Opportunities and Challenges Facing Developing Countries 48, 53 (UNDP Discussion Paper No.
   6, 2009). The now more common “price escalation clauses” use methods that link pricing adjustment to
   the value of commodities or a more stable foreign currency or an official price index taking account of
   broader macroeconomic parameters. Clauses that deal with more endogenous contingencies include “earn-
   out clauses” that make payment of a portion of the purchase price contingent on future performance or
   (non)-occurrence of a prefigured liability. Another, the “material adverse change” [hereinafter M.A.C.]
   clause, allows a party to withdraw from the transaction, upon the occurrence of the contingency and
   before completion. Of course, this termination consequence of the M.A.C. clause makes it distinct from
   the stabilisation and adjustment clauses. Equally notable is that, the material change could result from
   the effect of exogenous risks (material adverse effect): see Lars Gorton, The Nordic Tradition: Application of
   Boilerplate Clauses under Swedish Law, in BOILERPLATE CLAUSES, INTERNATIONAL COMMERCIAL CONTRACTS AND THE
   APPLICABLE LAWS 276, 293 (Giuditta Cordero-Moss, ed., 2011).


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As we will show in Part 2 below, this difficulty explains the dynamism, often verging on
aggression, with which contractual mechanisms are evolving to address increasingly
complex circumstances, the key relevant examples, for our purpose, which are Force
Majeure and hardship clauses.42 A related insight emerges from a key assumption in I.C.T.
that institutions of collective coordination, such as the courts, are equally constrained in
the ability to “verify relevant variables”.43                This will be demonstrated later in the
gradualness by which judicial and statutory interventions master the satisfactory
ordering of the economic adjustments necessitated by distortions arising from
supervening events.44           T.C.T. further explains how this institutional weakness spurs
certain developments in contract design. We could highlight two of them here. One such
development is the increased use of the tools of bilateral coordination, such as
renegotiation by the parties themselves, in addressing certain classes of unplanned
circumstances that emerge in the life of the contract. Thus, there is an increased
balancing of explicit allocation of risks (“commitment constraints”) with provisions that
are broadly descriptive of how obligations may be ascertained in the future (“flexibility
constraints”).45 Another development is the increased private ordering of external
resolutions through mechanisms that limit classical collective coordination via the
courts. These mechanisms include adoption of dispute resolution clauses that resort to
expert reference and commercial arbitral panels or adoption of market-determined
contracting tools such as industry-defined terms, model clauses as well as trade customs
and usage.46 Gilson et al have articulated how these developments themselves emerge
out of an exercise, by contracting parties, of party autonomy that fosters a contextualist
approach in the interpretation of contract.47 In their exposition, the authors explain, in
essence, that:


     1. At a low level of uncertainty, parties, by clarity and explicitness (the economists’
        “commitment constraint”), restrict the courts to the express terms (a textualist
        approach);

42
   See infra Part B.
43
   Brousseau & Glachant, supra note 38, at 10.
44
   See infra Part 2.
45
   Brousseau & Glachant, supra note 38, at 13.
46
   These contemporary attitudes, which ultimately weigh in favour of the survival of the contract, are captured
   in important documents of the lex mercatoria such as Principles of International Commercial Contracts, the
   Principles of European Contract Law and the Draft Common Frame of Reference and has been an influence
   in municipal contact law reforms as reflected in the 2016 Article 1195 of the French Code Civil. See also Kovac,
   supra note 31, at 289. On a significant implication of usage or trade custom for contract interpretation, see
   infra note 51.
47
   See generally Ronald J. Gilson, Charles F. Sabel & Robert E. Scott, Text and Context: Contract Interpretation as
   Contract Design, 100 CORNELL L. REV. 23 (2014).


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     2. At a higher level of uncertainty, the parties adopt wider terms that allow the courts
        to import commercial standards as interpretative tools; and

     3. As uncertainty increases further still, parties repair out of “centralised
        coordination” mechanisms to a more “collaborative process”, or “bilateral
        coordination”, for resolution by the parties themselves, by reducing the role of the
        “generalist court” (“flexibility constraints”).48

As we would see in Part 2, contemporary contractual mechanisms reflect these attitudes.
           The second area of illumination is very crucial to a prediction of what the parties
would do under the circumstances of a global pandemic. Will the attitude of parties be to
seek judicial determination or otherwise exercise unilateral rights under current
contracts, with the possibility of terminating contracts, ending relationships and
obtaining payoffs? Or will they remain under the bilateral coordination mode and take
steps to save the relationship and possibly the transaction? The answer is already
prefigured by what we have noted on the institutional weakness of centralised
coordination and the consequent expansion of scope for bilateral coordination in
contemporary contract-making. Bilateral coordination leaves room for parties to fill in
the gap in light of improved ability to verify the variables through ex post assessment of
the changed circumstance, rather than subject parties to hold-up risk wherein one party
uses the courts to enforce a conceptually imperfect contract or “non-contractible”
term.49      In this regard, bilateral coordination (or “self-enforcement”) supplements
centralised coordination (or “court enforcement”) as a tool of performance
enhancement.50
           The implication of this insight is that, in circumstances of incomplete contract,
the ex post attitude of parties to performance is generally contract- and
relationship-saving. This is the objective of supplementing mechanisms of centralised
coordination or court-enforcement with those of bilateral coordination or
self-enforcement in contemporary contract-making. Interestingly, Incentive Theory has
an insight to contribute in this regard. Since shedding a contracting partner in a
48
   Id. at 66–7. Of course, economic considerations guide such exercise of autonomy in the choice of contract
   design. See Eric B. Rasmusen, Explaining Incomplete Contracts as the Result of Contract-Reading Costs, 1 ADVANCES
   IN ECON. ANALYSIS & POL’Y (2001) (identifying factors like “unobservability, unverifiability, second-best
   incentives, fear of signalling undesirable characteristics, contract-writing costs, and legal default rules”
   as relevant to such consideration); see also SUGATA BAG, ECONOMIC ANALYSIS OF CONTRACT LAW: INCOMPLETE
   CONTRACT AND ASYMMETRIC INFORMATION 7 (2018) (identifying other factors such as whether transaction
   takes place within “thick” or “thin” market – referring to the number of buyers and sellers – whether
   the transaction- or relationship-specific investments are to be made – such as with specialised goods – and
   whether such investment are to be made before performance is due).
49
   See Klein, supra note 39, at 61.
50
   Id. at 60.


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                                          LAW IN A TIME OF CORONA


long-term relationship would require selecting a replacement, new risks of adverse
selection inevitably arise (an aspect of switching cost). The new relationship will present
new incidence of information asymmetry that the old one has relatively overcome
through previous dealings. Institutionally, it also presents new constraints in judicial
determination, since one of the tools employed by the courts in interpretation of
contracts is “ course of dealing”.51
           In view of the foregoing, it is safe to essay that, in light of the potentially global
ramifications of the Covid-19 pandemic, regardless of relative rights under the doctrinal
grounds or in contract, parties are likely to adopt a bilateral approach aimed at
contract-saving, with the possibility of renegotiation and, if relevant, adjustment of
terms. The contracts, if well drafted, would be a helpful guide in this regard. The
importance of a well-drafted contract should be underscored here, since, as we would
demonstrate in Part 2, there has not been consistency across jurisdictions in the
development of the doctrinal grounds to support the “self-enforcing” or “bilateral
coordination” objectives of contracting parties.



     1.2. SUPPLY CHAIN DISRUPTION AND RISK MANAGEMENT

Supply chain relationships are an example of the kind of long-term contractual
relationships52 that are vulnerable to the uncertainties of future variables, thus
necessitating the contractual solutions articulated in economic literature. In supply
chain management, supply chain disruptions. S.C.D. are “unplanned events that impede or
stop the flow of materials, information, services or financial resources within and
between the organisations of a supply chain involved in producing a good or service.”53


51
   See GUENTER H. TREITEL, THE LAW OF CONTRACT 220–21, 213 (11th ed., 2003). Course of dealing or, in long-term,
   repetitive transactions, course of performance, arises in relational settings, whilst trade usage or custom has
   an analogous interpretative role in market settings. Thus, a court faced by the constraints of the absence
   of evidence in previous dealings may be benefited by applicable rules of the market as evidenced in trade
   usage or custom. For the discussions on the roles of “course of dealing” and “trade usage” or custom in
   the interpretation of contracts [albeit, not setting store on the larger debate about formalism (evidentiary
   sources for the parties’ intention in the interpretation of contract) and the desirability or ranking of “course
   of dealing” and “trade usage” in the hierarchy of such sources], see, e.g., Eunsoo Choi�, supra note 29; Eyal
   Zamir, The Inverted Hierarchy of Contract Interpretation and Supplementation, 97 COLUMBIA L. REV. 1710 (1997).
   David Charny, The New Formalism in Contract, 66 UnIV. Chicago L. Rev. 842 (Summer 1999). Alan Schwartz
   & Joel Watson, The Law and Economics of Costly Contracting, 20 J. L. ECON. & ORG. 2 (2004). Ariel Porat,
   Enforcing Contracts in Dysfunctional Legal Systems: The Close Relationship between Public and Private Orders: A Reply
   to McMillan and Woodruff, 98 MICH L. REV. 2459 (2000).
52
   See Tobin E. Porterfield, John R. Macdonald and Stanley E. Griffis, An Exploration of the Relational Effects of
   Supply Chain Disruptions, 51 TRANSP. J. 399, 412 (Fall 2012). (ascribing a long-term perspective to B2B supply
   chain relationships).
53
   Id. at 402.


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Such events also tend to be unanticipated.54 In short, they roughly approximate typical
Force Majeure events in contractual clauses or those held to foist impossibility of
performance in the doctrines. These are distinct from mere “risks from coordination of
supply and demand”.55 They are also distinct from supply chain disturbance,56 which are
events with less severe effects and merely require future adjustment based on some
predictable formula or methodology.57
           In the context of broader discussions on supply chain risk management, S.C.D.
highlights issues of supply chain vulnerabilities and how ex ante measures sometimes fail
to foster system resilience.58 Such ex ante measures are, in part, cognates of economic
incentives that parties design to enhance performance in circumstances of Savage
rationality and complete information. Failure of such measures and occurrence of S.C.D.
raise issues of imperfect information situations occasioned by Knightian uncertainties
that are better addressed through incomplete contract mechanisms.59 For example, the
objective of exchange partners to foster stability in a supply chain relationship is
accomplished by two broad categories of strategy: buffering and bridging. Buffering
strategies are unilateral steps taken by individual partners to mitigate the effect of
S.C.D., for example, putting in place appropriate inventory management (such as
maintaining safety stock) and establishing alternative supplier relationships.60 Bridging
strategies, on the other hand, are acts of bilateral coordination by which partners seek,
through information exchange (backed by incentives, it might be said), to mitigate the
risk of S.C.D..61 However, it could also have a multilateral effect in the context of value
chains underlain by the operational logic of O.L.L.S. contracts.62 That being said, there is
no reason to not combine these two strategies.63                          For example, parties could, in
contract-making, express the intention of diversifying the sources of supply or otherwise

54
   Id. at 401–02.
55
   Paul R. Kleindorfer & Germaine H. Saad, Managing Disruption Risks in Supply Chains, 14 PROD. & OPERATIONS
   MGMT. 53 (2005).
56
   See Porterfield et al., supra note 52, at 401.
57
   See supra note 41 and accompanying text for the economic analogue of this distinction and its legal cognate
   in contract drafting.
58
   Resilience itself is only one of the measures of system safeguard discussed in the literature. Others are
   stability, robustness and, lately, viability. See Ivanov & Dolgui, supra note 9 (introducing the concept of “
   viability” in respect of I.S.N.s and discussing the other safeguard measures). Our use of “resilience” in this
   article is a catch-all for all these measures.
59
   See supra Section 1.1.
60
   See Christoph Bode et al., Understanding Responses to Supply Chain Disruptions: Insights from Information
   Processing and Resource Dependence Perspectives, 54 ACAD. MGMT. J. 833, 834 (2011).
61
   See Dominic Essuman et al., Operational resilience, disruption, and efficiency: Conceptual and Empirical Analyses,
   INT’L J. PROD. ECON., November 2020, at 1, 9.
62
   Jaakko Salminen, Contract-Boundary-Spanning Governance Mechanisms: Conceptualizing Fragmented and
   Globalized Production as Collectively Governed Entities, 23 INDIANA J. GLOB. LEGAL STUD. 709 (2016). See also infra
   Part 3 for our suggestions on how this framework may be adapted to S.C.D. risk management.
63
   See Bode et al., supra note 60, at 836.


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                                         LAW IN A TIME OF CORONA


variegating the means of performance. As we will see later, the stipulated method of
performance has implications in the Excuse regimes.64
           Whilst studies have established that S.C.D. holds financial and operational risks
for affected firms,65 the literature has not significantly examined its effect on partner
relationships.66 A useful study has drawn inspiration from service failure literature in
business-to-customer setting to develop an expository study on the effect of S.C.D. on
supply chain relationships, which tends to be B2B.67 Our own preliminary observation is
that the role of the legal regimes generally – and implications of the structure and
content of contracts, in particular – have been ignored in the emerging studies of S.C.D..
This observation is consistent with findings on the general marginalisation of legal
regimes in emerging studies of G.V.C.s.68 For example, in discussing the seven recovery
factors that they identified as contributing to the post-S.C.D. recovery process,
Porterfield, et al, did not highlight the role of contract provisions in any one of them.69
Equally absent is the role of legal regime on the enumerated recovery outcomes.
           In spite of this notable disciplinary insularity, we are able to draw a number of
insights from the relational focus of Porterfield et al that support the hypothesis in
contract economics and provide concrete evidence on the attitude of actors in global
commerce to failed performance under disrupted circumstances.                                In the review of
existing literature, Porterfield et al, highlighted insights from previous scholarly
findings that may be summarised as follows:


      • In view of its long-term nature, supply chain relationships tend to have an
        information-symmetrising dimension. Therefore, a break in the relationship, and
        consequent partner replacement, entails transaction costs.70

      • The overriding objective of the partners in S.D.C. management is the restoration of
        the supply chain to a normal productive state.71


Furthermore, results from their own preliminary study came up with propositions that
associate a positive relationship outcome, on the one hand, with factors such as a
64
   See infra text accompanying note 222 for discussion of the idiosyncratic string of decisions in the so-called
   Suez Canal cases that buck the general principle in this regard.
65
   See Porterfield et al., supra note 52, at 402–03, for a review of the literature on the financial and operational
   impacts of SDC.
66
   See Phil Greening & Christine Rutherford, Disruptions and Supply Networks: A Multi-Level, Multi-Theoretical
   Relational Perspective, 22 INT’L J. LOGISTICS MGMT. 104 (2011).
67
   See Porterfield et al., supra note 52.
68
   See IGLP Law & Global Production Working Group, The role of Law in Global Value Chains: A Research Manifesto,
   4 LONDON REV. INT’L L. 57, 59-60 (2016).
69
   See Porterfield et al., supra note 52, at 418 (enumerating the seven factors as the following: teamwork, process
   input, responsiveness, accessibility, process fairness, honesty & effort as well as outcome equity).
70
   See id. at 403.
71
   Id. at 402.
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collaborative recovery process, a perception of equitable outcome and, on the other
hand, honest dealing. Apart from the importance of the process and teamwork to the
partners, another significant finding from the study is that, unlike the case with B2C
parties, supply chain partners tend not to be fixated on blame assignment and
compensation.72
              These insights clearly support the hypothesis that economic actors prefer
bilateral coordination in the resolution of disruptive circumstances. Nonetheless, the
study by Porterfield et al would have been enriched by a consideration of the legal
regime as a factor.        For example, in contemplating why partners treat blame and
compensation as relatively unimportant in the recovery process, the scholars pointed in
a number of directions for future scholarly pursuits. Notably absent is the possible role
of contractual provisions that stipulate, or fail to stipulate, a protocol for coordinating
the resolution of these unplanned circumstances. As we will demonstrate in Part 2.2,
such provisions are not just a staple of contemporary contract-making, but are assuming
ever-increasing importance.
              To conclude this Part, in view of the insight from economic and management
studies that transaction and relationship saving is an important objective of commercial
actors faced with unplanned and disruptive circumstances, the robustness of a legal
regime – doctrinal or contractual – in supporting the said objective should be considered
a key attribute of that regime.        In fact, that attribute might be considered a key
determinant of the resilience of the legal regime in managing a widespread, disruptive
development such as the Covid-19 pandemic. Therefore, it forms a key consideration in
our analysis of the legal regimes in Part 2 below.




72
     Id. at 421.


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                                          LAW IN A TIME OF CORONA


       2. FAILURE TO PERFORM – THE LEGAL REGIMES

     2.1. EXCUSE UNDER THE DOCTRINES

Sanctity of contract – the principle that parties should be bound by their promises –
pacta sunt servanda – is fundamental to the entire law of contract. Nonetheless, the
general law in many legal traditions have rules that allow Excuse where a development
arising after the making of the contract has a supervening effect on performance.
Although such developments arise in the form of events, since the list of possible events
could be infinite, they are better expressed in terms of the effect or operational
consequence on performance (which we call “supervening effect”).73 The legal doctrines
are therefore anchored on two issues: (i) defining the nature of the event, including, if
not inherent, its supervening effect on performance, and (ii) the legal consequence. This
approximates the two parts of a typical contractual clause: hypothesis and regime.74 In
this Part of the article, we examine how key jurisdictions of the common law and civil
law traditions address these two issues.
           As we will show, the supervening effects tend to generally stretch from the stricter
ground of impossibility to more flexible grounds. Two types of differentiation occur in the
legal traditions as the effects taper off towards the flexible end. The first is that of degrees,
as the flexible effects in the civil law jurisdictions considered in this article extend as far
as mere change of circumstance or commercial hardship. As will become clear presently,
common law tends to be much more restrained in availing parties of Excuse as the effect
moves in the flexible direction. The other type of differentiation is a corollary of the first
and goes to the very structure of the doctrines. Unlike the case under the common law,
the civil law jurisdictions tend to treat the law regarding mere change of circumstance as

73
   It is important to emphasise the effect as the animating aspect of the bare, producing event, a view that
   has been underscored in the emerging “multifactorial” approach to determination of frustration by courts
   in some common law jurisdictions, in which the nature of the supervening event is one of the factors to be
   considered and the effect of the event on the common purpose of the parties has been determinative of
   one of the cases. See infra Section 3.4.2 for a discussion of the New Zealander case of Planet Kids Ltd. v.
   Auckland City Council [2013] NZSC 147, [2014] 1 NZLR 159. In the American case of Hoosier Energy Rural
   Electric Coop. Inc. v. John Hancock Life Ins. 588 F. Supp. 2d 919, (S.D. Ind. 2008), the relative scope and
   unprecedented nature of the circa 2008 global financial crisis – and the foreseeability of its effect, relative to
   the insurance industry crisis of the 1980s – was a distinguishing factor between the case before the district
   court, where an Excuse was hypothetically admitted (hypothetical, since closure in the matter was reached
   by settlement) and the earlier case of Kel Kim Corp. v. Central Markets Inc. 519 N.E.2d 295 (N.Y. 1987) where
   an Excuse had been rejected [see, for discussion, Carlos A. Encinas, Clause Majeure?: Can a Borrower Use an
   Economic Downturn or Economic Downturn-related Event to Invoke the Force Majeure Clause in Its Commercial Real
   Estate Loan Documents?, 45 Real Prop. Tr. & Est. L. J. 731, 760 (2011). . Similarly illuminating, in this regard, is
   the practice in contractual regimes wherein the hypothesis in hardship clauses are drafted with two parts,
   namely: (i) the changed circumstance and (ii) its operational consequence, in essence, the effect (see infra
   note 176 and accompanying text [entire paragraph]).
74
   See FONTAINE & DE LY, supra note 41, at 402.


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a distinct doctrine and allocate them legal consequences different, in significant respects,
from those of impossibility.75 In this article, we call this a “dual” approach to Excuse.
           Allocation of legal consequences include, not just the intervention of the law on
the obligations of the parties, but also the much more complex issue of adjustment of any
economic distortions that might have been occasioned by the disruption. In principle,
the doctrinal grounds for Excuse results in “neutral” consequences. By this is meant that
the obliged party is discharged from the affected obligation with the implication, in most
cases, of equally discharging the counterparty of any mutual obligation and bringing the
contract to an end. This is the case with the impossibility effects and, in jurisdictions
where there is no dual approach to the doctrines, to the automatic consequence of
Excuse generally. In this regard, the common law is referred to as a “closed” system
because of the invariable application of this terminal consequence to all cases of
Excuse.76 In the “open” systems of the civil law, the distinct doctrinal consequence of
Excuse for change of circumstance allows a more flexible approach whereby, before
consideration of discharge and termination, a number of mechanisms, including bilateral
coordination (e.g., renegotiation by the parties) and centralised coordination (i.e.,
adaptation by the courts) could be employed to attempt a correction of the economic
distortion which occasions the Excuse and to keep the contract alive. This procedural
approach of the “open” systems to the issue of economic adjustment is therefore
different from that of the “closed” system. In the latter, economic adjustment, following
discharge and termination, is by way of centralised coordination, albeit a priori, through
substantive rules on loss adjustment, as developed by the courts and finessed under
relevant statutes. These different approaches and outcomes are discussed further below.




75
   Merely recognising the structural differences in the doctrines, as we have done, is sufficient for our purpose
   here, although there is a rich debate on the relative doctrinal merits of the dual and unified approaches. See,
   e.g., Tobias Lutzi, Introducing Imprévision into French Contract Law - A Paradigm Shift in Comparative Perspective, in
   THE FRENCH CONTRACT LAW REFORM: A SOURCE OF INSPIRATION? 89, 108 (Sophie Stijns & Sanne Jansen eds., 2016).
   (commending the German dual approach for its doctrinal coherence and its combination of certainty and
   flexibility based on the nuances of the events). Janwillem (Pim) Oosterhuis, Commercial Impracticability and
   the Missed Opportunity of the French Contract Law Reform: Doctrinal, Historical and Law and Economics Arguments
   - Comment on Lutzi’s Introducing Imprévision into French Contract Law, in THE FRENCH CONTRACT LAW REFORM: A
   SOURCE OF INSPIRATION? 113, 128 (Sophie Stijns & Sanne Jansen eds., 2016).(which, while recognising the
   doctrinal coherence of the German approach, especially in light of the historical factors of post-W.W.II
   commercial uncertainties and the importance of the “good faith” principles in civil law tradition, has argued,
   in essence, that having a separate legal consequence for the more flexible Excuse is not a necessary quality
   of legal doctrine. He notes: “legal doctrine does not dictate the content of the remedy”).
76
   Ewoud Hondius & Hans Christop Grigoleit, Introduction: An Approach to the Issues and Doctrines Relating to
   Unexpected Circumstances, in UNEXPECTED CIRCUMSTANCES IN EUROPEAN CONTRACT LAW 3–14, 10–12 (Ewoud
   Hondius & Christoph. Grigoleit eds., 2011). Janwillem Oosterhuis, Unexpected Circumstances Arising from World
   War I and its Aftermath: “Open” Versus “Closed” Legal System, 2 ERASMUS L. REV. 67, 67 (2014).


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     2.1.1. COMMON LAW: DEFINING THE SUPERVENING EFFECTS UNDER A
     UNIFIED STRUCTURE

In the common law tradition, the English doctrine of frustration developed from the
hypothesis that an event has to make performance impossible for it to provide ground
for Excuse. Impossibility could arise, for example, from the destruction of the subject of
contract,77 or the death or incapacity of a party in a contract for personal service,78 or
contract otherwise relying on personal skill or experience79 or a change in the law that
makes performance illegal.80 Supervening illegality – has a unique quality, having regard
to the public policy dimension to the consideration of the courts in relevant cases.81
           The English doctrine has since expanded to cover more flexible supervening
effects – to wit, radical difference.82 Thus, an obligation would be considered frustrated
even where there is no physical impossibility but performance would only be possible
where the obliged party would, in essence, be required to perform a contract radically
different from that undertaken by the parties.83 Frustration of purpose is an example of
such radical difference in the context of a contractual bargain to receive good or service
whose original purpose has now failed by virtue of the intervening event before the time
of delivery. This was the case in some of the “coronation cases”. Meanwhile, American
courts have developed commercial impracticability, a flexible class of supervening effect. A
party is discharged of a contractual obligation where the party’s performance is made
“impracticable without his fault by the occurrence of an event the non-occurrence of
which was a basic assumption on which the contract was made.”84 It is to be noted,
though, that the ground of commercial impracticability in American practice, is not cast
as an alternative to, but as a practical restatement of the ground of impossibility since, in


77
   Taylor v. Caldwell (1863) 122 Eng. Rep. 309 (K.B.).
78
   Whincup v. Hughes (1871) L.R. 6 C.P. 78.
79
   Cooper v. Micklefield Coal & Lime Co. (1912) 107 L.T. 457.
80
   See Ertel Bieber & Co. v. Rio Tinto Co. [1918] A.C. 260.
81
   See infra note 133 for a discussion of the ramification of this public policy dimension on the freedom of the
   parties to freely allocate the risk of non-performance.
82
   See Krell v. Henry [1903] 2 K.B. 740 (one of the so-called “coronation cases” that arose from the postponement
   of the coronation ceremonies of King Edward VII in 1902, in which the hire of a property for the purpose
   of gaining a vantage view of the coronation procession was declared frustrated by the postponement since
   the hirer thereby had no use for the property); See also C.T.I. Group v. Transclear S.A. [2008] E.W.C.A. Civ. 856
   (C.A.).
83
   See Davis Contractors Ltd v. Fareham Urban District Council [1956] AC 696 (Lord Radcliffe, via an obiter dictum
   in this case, articulated the test of “radical difference”).
84
   Restatement (Second) of the Law of Contracts, §261 (Am. Law Inst. & Unif. Law Comm’n 1981). Regarding
   the sale of goods, a provision with similar effect can be found in state-adopted versions of the U.C.C., § 2-615.
   See also Transatlantic Financing Corp. v. United States, 363 F.2d 312 (D.C. Cir. 1966). Cf. Encinas�, supra note
   73�, at 754 (casting doubt on the existence of impracticability outside the context of the U.C.C. and as a general
   law in some American jurisdictions, for example, under New York law).


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any case, supervening events do not always render performance absolutely impossible.85
In this regard, impracticability could be taken as the American analogue of
contemporary English frustration that, in practice, softens the sense of strictness
conveyed by the notion of impossibility.86 These more flexible effects are considered
sufficient ground for Excuse since they cause radical transformation of the bargain of the
parties into one not intended, although the American laws are bolder in highlighting its
basis in the defeat of the economic logic of the bargain.87
           Lastly, it should be noted that the principle of sanctity of contract creates a tension
in the application of the above-mentioned supervening effects and holds the courts in
check in how they deploy them to relieve parties of their obligations. This tension is best
demonstrated in cases involving the more flexible effects. Thus, failure to perform will
not be excused on the basis of adverse risks emergent from regular economic cycles or
other incidences of normal commercial hardships that merely make the bargain less
profitable to a party. For example, a mere change in market conditions such as currency
fluctuation or inflation will not be a sound ground for Excuse,88 nor would bad weather
and labour shortages.89 American doctrine of commercial impracticability also generally
rules out these cyclical events with economically distortive effects.90 Where however,
incidents like increased cost and raw material shortage arise from “some unforeseen
contingency which alters the essential nature of the performance,” it may be considered
a sound ground for Excuse on the basis of impracticability.91 Thus, whilst we might have
noted the relative importance of the supervening effect, it appears that, as the effect
begins to taper towards these common economic distortions, the contingency of the



85
   See Restatement of Contracts §454 (1932) (“impossibility means not only strict impossibility but
   impracticability because of extreme and unreasonable difficulty, expense, injury or loss involved”). See also
   Encinas�, supra note 73�, at 745–46.
86
   See also Restatement (Second) of the Law of Contracts § 265 (also covering relief of discharge in cases of
   “frustration of purpose” where, following the making of the contract, “a principal purpose is substantially
   frustrated”).
87
   An economic analysis of the distinction has also been made. Compare Andrew A. Schwartz, A Standard Clause
   Analysis of the Frustration Doctrine and the Material Adverse Change Clause, 57 UCLA L. REV. 789, 819-20 (2010)
   (suggesting that, while “impracticability” covers situations in which performance is frustrated because it
   can only be accomplished at a prohibitive cost, the English doctrine of frustration applies to situations in
   which the value to be gained from performance has fallen so far as to make the bargain meaningless), with
   TREITEL, supra note 51, at 885 (in drawing a similar contrast, additionally suggesting that “impracticability”
   allows a supplier to avoid the obligation to deliver at prohibitive costs whilst English “frustration of purpose”
   allows a buyer to similarly demur in taking delivery where it has fallen so far as to be meaningless). See supra
   note 86 for the American analogue on frustration of purpose.
88
   See Albert Monichino QC, Plummeting Market Prices: Frustration, Force Majeure or Hardship?, AMPLA Y.B. (2015)
   (discussing Excuse in the context of fallen prices in global commodities trade in the 2010s).
89
   See Davis Contractors Ltd v. Fareham Urban District Council at 83.
90
   See U.C.C. §2-615 cmt. 4.
91
   Id.


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                                         LAW IN A TIME OF CORONA


event that triggers it takes on a more significant role in the determination of
impracticability.
           It is easy to see that this position is open to all manners of ex post risks, including
moral hazard and hold-up that may be exploited by contracting parties. Consideration of
those risks, perhaps along with the rigid legal consequences assigned to Excuse,92 explains
why the more flexible supervening effects have been a tough ground upon which to base a
case for Excuse under the common law.93 Evidence suggests that the ground of frustration
of purpose in English courts practice tends to be available mostly for consumer contracts,
rather than contracts between two parties with relatively balanced power relations.94



     2.1.2. COMMON LAW: CLOSED APPROACH TO LEGAL CONSEQUENCES

As already noted, in common law, the obliged party is generally discharged from
obligation of further performance of the frustrated obligation, without damages being
awarded for failure to perform. Of course, such a discharge results in a concomitant
discharge of the counterparty from further performance of mutual obligations. Under
the English doctrine, depending on the nature of the obligation, this would effectively
result in the termination of the entire contract. An exception to that rule would be in
respect of an obligation that is severable – either because the contract itself is severable
in nature95 or the parties have by agreement made that obligation severable.96 In such
severable cases, a discharge only affects performance of the specific obligation while the
rest of the contract survives.97              Another exception is found under the doctrine of

92
   See infra Section 2.1.5 for a comparison of the legal consequences of Excuse under the common law and the
   civil law.
93
   See ROSENN, supra note 37, at 98–109 (analyzing the cases demonstrating the difficulty of justifying Excuse
   on the more commercial grounds under the common law); see also Lutzi, supra note 75, at 99.
94
   See Egidijus Baranauskas & Paulius Zapolski, The Effect of Change in Circumstances on the Performance of Contract,
   118 JURISPRUDENCIJA 197, 203 (2009).
95
   For example, part performance – which generally is effectively non-performance – could nonetheless, in
   the context of severable obligations, leave as enforceable the agreed payment for the performed portion of
   the contract whilst damages lie for the unperformed portion [see Ritchie v. Atkinson 10 East 295 (1880) and
   Atkinson v. Ritchie10 East 530 (1809)]. By analogy, excusing non-performance of a severable obligation on
   grounds of frustration may nonetheless leave the other portion, if already performed or still performable,
   enforceable [see Stubb v. Holywell L.R. 2 Ex. 311 (1867). We discuss relevant statutory provisions with similar
   effect in the next two paragraphs of this Section 2.1.2.
96
   See Uri Benoliel, Contract Interpretation Revisited: The Case of Severability Clauses, 3 BUS. & FIN. L. REV. 90
   (2019).(showing, through empirical study of 500 contracts between “sophisticated parties”, that parties
   include severability clauses to constrain the courts from taking a contextualist approach to determining
   the consequences of unenforceable contracts, the deliberateness of which attitude is further evidenced by
   the wide variation – in form and substance – of such clauses, that tend to be non-boilerplate).
97
   Note, however, that in the case of contractual severability clauses, they typically operate to moderate the
   legal consequence of discharge – usually by saving the clauses that effectuate economic adjustment – rather
   than keep alive the contract, broadly conceived. See FONTAINE & DE LY, supra note 41, at 168.


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 temporary impossibility that some American courts have introduced regarding
 impossibility of brief spells that merely excuse performance “until it subsequently
 becomes possible to perform rather than excusing performance altogether.” This has
 been applied in circumstances both, where impossibility due to a brief disruption was
 excused98 and where obligation was reinstated rather than finally terminated on account
 of the brief nature of the disruption.99
           Economic adjustment, following termination, addresses not just the value that
 has passed from the obliged party to the other in exchange for the discharged obligation.
 The law of unjust enrichment should be sufficient to enforce recovery in such a simple
 scenario.100 However, the situation would typically be more complicated, as value of some
 sort might have moved either ways or the parties might have incurred costs of varying
 degrees before the discharge of the contract. In this scenario, termination of the contract
 without more would, on the balance, leave one of the parties with the short end of the
 bargain stick.
           In the U.K., the approach to these problems has been to create substantive rules,
 first through the courts and then by legislation. Following an array of court decisions on
 economic adjustment that do not appear to align on the principles,101 statutory
 intervention has brought a level of clarity into the matter. Under Section 1(2) of the U.K.
 Law Reform (Frustrated Contracts) Act of 1943, the mode of adjustment regarding prior
 monetary exchange would be as follows: (a) sums payable under the contract before the
 supervening event will cease to be payable (b) any sums actually paid by a party before
 the said event will be recoverable from the payee regardless of whether part
 performance has occurred before the event,102 and (c) expenses incurred by a party in
 actuation of the contract may, at the court’s discretion, be recovered where there is a
 prepayment provision in the contract and up to the exact amount expended (regardless
 of whether a portion of the loss has been covered through insurance proceeds)103 . Where
98
    See Bush v. ProTravel lnt’l, Inc. 192 Misc. 2d 743, 752 (N.Y. Civ. Ct. 2002) (in which brief impossibility due
    to breakdown of communication facilities in Manhattan following the “9/11” terrorist attack in 2001 was
    excused). For discussion of this, and the case in infra note 99, see Encinas, supra note 73, at 746–47.
 99
    See e.g., Boston International of Miami v. Arguello Tefel, 644 F. Supp. 1423, 1427 (E.D.N. Y. 1986) (in which
    payment obligation, briefly disturbed by the obligee’s presence in a territory with currency restrictions –
    impossibility due to illegality – was reinstated after the said obligee left that territory).
100
    See Fibrosa Spolka Akeyina v. Fairbairn, Lawson, Combe, Barbour Ltd AC 32 (1943).
101
    See e.g., the decision in Chandler v. Webster 1 K.B. 493 (1904) (another of the “coronation cases” with
    facts similar to those in Krell v. Henry 2 K.B. 740 (1903)). Here, the hirer under the frustrated contract
    of hire did not just lose the bid to recover his deposit, but was also ordered to pay the balance of rent to
    the landlord. An opposite economic adjustment was effected in Krell v. Henry, in which the landlord under
    similar circumstances was ordered to refund the rent paid under the frustrated lease.
102
    This changed the position in a previous House of the Lords decision in which, unlike in Chandler v. Webster,
    supra note 101, refund of prior payment was ordered, but on the basis that there was total failure of
    consideration for the payment. See the Fibrosa case, supra note 100.
103
    See section 1(5) of the same act.


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                                       LAW IN A TIME OF CORONA


 a party has conferred non-monetary benefit on another in actuation of contractual
 obligations before the supervening event, Section 1(3) of the Act allows the first party to
 recover a sum representing, in the court’s judgment, quantum meruit, having regard to
 other factors such as expenses incurred by the benefited party and the impact of the
 supervening event on the benefit received.
           This U.K. legislation has been influential in many commonwealth jurisdictions,
 but not uniformly so.           In the Nigerian federation, for example, legislations with
 analogous provisions only apply in a handful of the thirty-six states of the federation,104
 so that the economic adjustment in consequence of frustration in the other states is still
 determined according to the unsatisfactory positions under common law.105 Meanwhile,
 other jurisdictions have recognised the weaknesses of the U.K. legislation in addressing
 multifarious dimensions that economic distortion take by virtue of a frustrated
 contract.106 For example, whereas under the U.K. Act, monetary and non-monetary
 obligations falling due prior to the frustrating event are treated differently, so that the
 former ceases to be payable under S. 1(2) whilst the latter remains undischarged under
 S.1(3),107 a different treatment is applied under Section 7 of the Frustrated Contracts Act
 of 1978 of New South Wales, Australia, as both types of obligations would be discharged
 except as may be necessary to support a breach of contract claim.108



      2.1.3. CIVIL LAW: DEFINING THE SUPERVENING EFFECTS UNDER A DUAL
      STRUCTURE

 Doctrines roughly analogous to the supervening effects in the doctrine of frustration are
 found in the civil law tradition. Under German law, a contracting party has two levels of
 obligations – the principal obligation to perform the contract and the subsidiary one to
 pay damages for failure to perform.109 However, by virtue of unmöglichkeit under the
 German civil code, a party is afforded Excuse on impossibility grounds, where there is an
 obstacle to performance that is both unknown to the said party at the time of contracting
 and not due to a default of that party.110 Additionally, there is scope for Excuse on the

104
    These states include Lagos under the Law Reform (Contracts) Law of 1961 and the seven states formerly part
    of the old Western Region of the country under the Contracts Law of 1961 of that region.
105
    See OLANIWUN AJAVI, LEGAL ASPECTS OF FINANCE IN EMERGING MARKETS 301 (2005).
106
    See e.g., Frustrated Contracts Act 1978, Ss 10 – 13 (New South Wales, Austl.).
107
    See TREITEL, supra note 51, at 916 (criticising the state of affairs as a “casus omissus”).
108
    See ANDREW STEWART, WARREN SWAIN & KAREN FAIRWEATHER, CONTRACT LAW: PRINCIPLES AND CONTEXT 285 (2019)
    (last visited Apr. 2, 2020) (more fully discussing the novelty of the New South Wales statute).
109
    See, Bürgerliches Gesetzbuch [BGB][Civil Code], § 241 & 280, translation at http://www.gesetze-im-
    internet.de/englisch_bgb/englisch_bgb.html#p0722 (Ger.).
110
    See Code Civil [C.Civ.][Civil Code] artt. 275, 311a(2) (Fr.). Note that these provisions apply equally to
    obstacles to performance existing both at the time of the contract and afterwards, the former which would
    be “mistake” under English law while the latter would be “frustration”.
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 much more flexible ground of change of circumstance.                             The ground of wegfall der
 geschäftsgrundlage (interference with the contractual basis), codified in the German law
 since 2002, affords Excuse where circumstances or material conceptions that form the
 basis of the contract changes so significantly that the parties would have entered into a
 different contact or not entered into it at all, were the change foreseen.111 The French
 code civil provides a similar dual basis for Excuse. Force majeure provides ground for
 Excuse where an unavoidable event that could neither be reasonably foreseen nor
 controlled makes performance impossible.112 On the other hand, imprévision (unforeseen
 contingency), newly introduced in the 2016 reform to French code civil, provides ground
 for Excuse, where an unforeseeable change of circumstance makes performance
 “excessively onerous for a party who had not accepted the risk of such a change.” 113



      2.1.4. CIVIL LAW – OPEN APPROACH TO LEGAL CONSEQUENCES

 The “neutral” consequences of the impossibility grounds under the German law means
 that the subsidiary obligation of a party to pay damages for failure to perform becomes
 unenforceable on account of the impossibility.114                        Any mutual obligations of the
 counterparty will be similarly          unenforceable.115       The French law similarly discharges the
 obliged party who has been affected by force majeure of the obligation of performance “to
 the extent of that impossibility.”116 The contract is also terminated by operation of the
 law. However, there will be no automatic discharge where the effect of force majeure is
 temporary, in which case performance is merely suspended for the period unless the
 delay thereby occasioned would justify proceeding to immediate termination.117
 Although contracts affected by the flexible “change of circumstance” grounds for Excuse
 in both jurisdictions could be ultimately terminated, they have a distinctive feature. This
 is the “adaptation” role of the court through which the court may, upon application,
 adjust the contract to suit the changed circumstance and restore commercial balance.118

111
    See BgB § 313 (Ger.).
112
    See C. Civ. art. 1218 (Fr.).
113
     Id. art. 1195. Before 2016, imprévision had been developed in the French administrative court and made
    applicable to contracts involving the government.
114
    See BgB § 311a, para. 2 (Ger.).
115
    See id. § 326.
116
     C. Civ. art. 1351 (Fr.).
117
    See id. art. 1218.
118
    See BgB § 313 (Ger.) and C. Civ. art. 1195 (Fr.). The German Civil Code is clear on the test that the court must
    adopt in setting about the task of adaptation. See also BgB § 313, para. 1 (Ger.) states that the court shall take
    account of “all the circumstances of the specific case, in particular the contractual or statutory distribution
    of risk” in making an alteration without which one of the parties cannot reasonably be expected to uphold
    the contract. The French Civil Code does not expressly stipulate any such guidance, although the contextual
    approach of the courts are to be taken for granted since the administrative courts developed its principles,
    taking into account the commercial instabilities in the years of the 20th century world wars (see supra note
    122).
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                                         LAW IN A TIME OF CORONA


 Termination may be ordered where such adaptation fails or, in the case of German wegfall
 der geschäftsgrundlage law, where it is not reasonably acceptable to a party.119 In French
 imprévision law, the parties may themselves first renegotiate the terms of the contract
 (during which performance must continue) or, failing that, terminate it, although where
 such efforts fail or are unduly delayed, one party may apply to court for adaptation or
 termination. Another doctrinal difference in the laws of “change of circumstance” in
 these two jurisdictions is that, while under French law, the court has the discretion to
 order adaptation or termination, a German court must give preference to adaptation
 first before considering termination.120



      2.1.5. COMMON LAW – CIVIL LAW COMPARISON

 There are significant doctrinal differences between the English and the continental
 attitudes to Excuse. For one, and as should have been noted in the articulation of the laws
 above, the flexible effect – change of circumstance – under continental laws are not
 perfect analogues to the more flexible effects under the common law.121                                Radical
 difference, under the common law, is merely the more flexible effect in a continuum of
 the single doctrine of frustration that includes the stricter effect of impossibility. The
 same is the case for commercial impracticability, at one end, and impossibility, on the
 other, in American law. Being a single doctrine, both strict and flexible effects are
 assigned the same legal consequences. Commercial hardship will not avail a party of
 Excuse where its effect is not serious enough to constitute a radical alteration of the
 contract. On the contrary, imprévision and wegfall der geschäftsgrundlage are considered
 distinct doctrines from the impossibility grounds under the French and German laws.
 Therefore, as we have seen above, different legal consequences are assigned to them.
 Additionally, their “change of circumstance” basis more properly approximates what
 would be considered, in the common law courts, mere commercial hardship: i.e. impacts
 of events such as currency fluctuation, price escalation, etc. In fact, their historical
 development is linked to efforts at correcting the commercial impacts of economic
 distortions caused by major twentieth century events that disrupted Europe, including
 the two world wars.122

119
    See BgB § 313, para. 3 (Ger.).
120
    See Kovac, supra note 31, at 301 (for a consideration of the efficiency consequences of these two approaches).
121
    Id. at 304.
122
    The relative recentness of these “change of circumstance” provisions in French and German laws belies
    their longer history of development. In the case of French imprivision, its principles had long applied to
    government contracts in the administrative courts before the extension to commercial contracts under
    the 2016 code. In Germany, the 2002 codification of Wegfall der Geschäftsgrundlage follows years of the
    development of its principles by the courts. See Oosterhuis, supra note 75, ROSENN supra note 37, at 4 (for
    historical accounts).
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 Another doctrinal difference relates to the factor of foreseeability of the supervening
 event or its effect. Whether an event is foreseen or (reasonably) foreseeable could be tied
 to two separate, though connected, determinations:                         (i) as an inherent part of
 determining the supervening event or its effect, without more, or (ii) as an important
 factor in determining if risk of Excuse has been allocated. Continental systems tend to
 take these as separate determinations, so that whereas unforeseeability has to be present
 as well as other ingredients (uncontrollability/unavoidability and impossibility) for the
 relevant supervening effect to be established, Excuse may be denied if in any case, from
 the wordings or circumstances of the contract, the obliged party has undertaken the risk
 of failure. It cannot be assumed that by the mere fact of their being foreseeable, risks are
 automatically undertaken or assumed by one party or the other without a separate
 determination in that regard. There is an economic explanation for why a foreseeable
 risk is not necessarily allocated or assumed. It is postulated that an optimal rule for
 Excuse is that “the risk in concern must be an unforeseeable one, where ex ante
 �processing/description costs exceed expected benefits of having processed/described for such a
 contingency.”123 Therefore, where the risk, though foreseeable, is very remote – in the
 sense of Knightian uncertainty – provision for it and therefore its allocation may present
 a cost that none of the parties was expected to undertake.�A separate determination
 would show if it was indeed allocated to, or assumed by, one of the parties.
           In their application of the provisions of Uniform Commercial Code,124 the
 American courts tend to adopt an approach similar to civil law courts in this regard.
 They similarly require that the relevant event that would provide basis for Excuse should
 not have been foreseen or reasonably foreseeable.125                       However, in the three-step
 approach to availing a party of Excuse on the ground of commercial impracticability, the
 court, in Transatlantic Financing Corp. v. United States,126 one in the first set of cases to
 interpret the provisions of U.C.C. § 2-615, treated determination of foreseeability
 (“contingency”) separately from that of allocation of the risk of that contingency as well
 as that of the impracticability effect on performance.127




123
     Kovac, supra note 31, at 292 n. 13 and accompanying text (emphasis added).
124
    See, e.g. U.C.C. § 2-615.
125
    See McWilliams v. Masterson, 112 S.W.3d 314, 320 (Tex. App. 2003); see Kel Kim Corp v. Central Markets, Inc.,
    supra note 73.
126
     Transatlantic Financing Corp. v. United States, supra note 84.
127
    Id. at 315.


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                                        LAW IN A TIME OF CORONA


 The position in the English courts is not so clear. The decision in the case WJ Tatem Ltd v
 Gamboa128 to the effect that the foreseeability of the event does not preclude the
 availability of frustration unless the parties expressly provide for it appears, on a cursory
 look, to be identical to that of the continental jurisdictions. However, this masks the
 confusing situation in the English courts where the two determinations stated above
 sometimes appear fudged so that, in some cases, enquiry as to the existence of the
 conditions for frustration might be the same as whether its risks are allocated with the
 foreseeability of the event playing a determinative role in that regard. Thus, a rash of
 obiter dicta have stated the position with inconsistency, with some affirming that
 foreseeability of the risk would preclude frustration129 and others stating the
 contrary.130 However, as we discuss later in this article a recent development in some
 common law courts – to wit, the multifactorial approach to cases of frustration – appears
 to be separating the two determinations as well as it is altering other aspects of the
 traditional common law approach to the doctrine of frustration.
           Other significant factors tend to be influential on the decisions. For example, a
 plea of frustration was rejected because the risk was reasonably foreseeable only to the
 party making the plea and not to the other party.131 However, the parties may, foreseeing
 the risk, agree expressly to preclude the application of the doctrine of frustration.132 No
 such agreement would however be upheld where performance is affected by some forms
 of supervening illegality.133 What is clear in the array of court decisions in this area is that
 they are bookended by two fundamental principles of contract in common law, namely:
 freedom of contract (by which it is sound reasoning that general doctrine should defer to
 the express intention of the parties to allocate the risks of failure to perform) and ex turpi


128
    [1939] 1 K.B. 132.
129
    Davis Contractors Ltd v. Fareham Urban District Council AC 696 (1956).
130
    Ocean Tramp Tankers Corporation v. V.O. Sovfracht (The Eugenia) 2 Q.B. 226 (1964) (taking the approach
    that foreseeability is irrelevant if the parties do not expressly provide for it, which is in tandem with the
    principle of freedom of contract).
131
    Walton Harvey Ltd v. Walker & Homfrays Ltd 1 Ch. 274 (1931).
132
    See Lord Denning’s obiter dictum in The Eugenia, supra note 130, at 239 (stating that “[i]t has often been
    said that the doctrine of frustration only applies where the new situation is “unforeseen” or “unexpected”
    or “uncontemplated” as if that is an essential feature…. The only thing that is essential is that the parties
    should have made no provision for it in the contract.”).
133
    See Ertel Bieber & Co v. Rio Tinto Co Ltd A.C. 260 (1918) (for a case of trading with enemy aliens). However,
    unlike the case in trading with enemy aliens, it is possible to exclude the doctrine and allocate the risk of
    non-performance in some cases. This is possible in some prohibition cases, where, on interpretation, the
    intention of the parties is not to subvert a legal prohibition, but some other clearly legal means of saving
    the transaction, such as temporary suspension, has been adopted and the allocated risk, say some form of
    payment, merely serves as economic adjustment for avoiding the immediate illegality. See TREITEL, supra
    note 51, at 887–88 (expressing the view that the unrelieved frustration of trading with an enemy alien,
    unlike some other cases of prohibition, is a suis generis case and especially based on strong public policy
    consideration).


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 causa non oritur actio (by which reasoning no express allocation of risk should be enforced
 so as to aid an illegality even where it arises ex post).134
           As the above shows, the approach in the “closed” systems of the common law has
 had some troubled outcomes. The creation of a priori substantive rules on economic
 adjustment demonstrates what we have noted as the weakness of centralised
 coordination in cases of Knightian “uncertainties”. Automatic discharge and termination
 of the contract itself bucks what we know about the contract-saving attitude of parties in
 such circumstances and the preference for bilateral coordination in that regard.
           The “open” system of the French and the Germans creates protocols by which
 economic distortions arising out of Excuse could be adjusted and the contract saved.135
 This is accomplished through the adaptation powers of the court or, before that in
 French imprévision law, renegotiation by the parties. In the English closed system under
 which discharge and, in most cases, termination of the entire contract is the invariable
 consequence, solutions to economic distortions have turned on development of
 elaborate substantive rules first by the courts and later by statute.



      2.1.6. MULTIFACTORIAL APPROACH: A CONTEXTUAL TURN IN COMMON
      LAW EXCUSE?

 Finally, recent developments in the law of frustration in some common law jurisdictions
 should be noted. The introduction of the “multifactorial” approach to the test by which
 a case of frustration may be determined departs from the now classical radical difference
 test. In the English case of The Sea Angel,136 Rix L.J. laid down the multiplicity of factors
 that the court should evaluate while considering whether a case of frustration has been
 established. These are:


      1. Terms of the contract;
134
    The maxim meaning, in précis: “the courts will not aid an act founded on illegality”, encapsulates a doctrine
    that, admittedly, is better developed in ex ante illegality of contract as well as in the Law of Tort. See Dov
    Goldberg, Does the Doctrine of Not Enforcing “Illegal Contracts’ Really Work? A Comparative Law Study (November
    10, 2010), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1707005 (last visited Mar. 27, 2020) (for an
    analysis of its application in contract and tort laws). However, application of the maxim to cases at both the
    making and the performance phases of contracts is encapsulated in the American Restatement (Second) of
    the Law of Contracts § 178.�
135
    See Oosterhuis, supra note 76 for a comparative analysis of the closed and open systems in Europe. It is to be
    noted that the article was published before the 2016 reform that now makes the French system an “open”
    one. Before then, only the administrative court applied the doctrine of imprévision to justify adaptation of
    government contracts that are disturbed by change of circumstance or commercial hardship (see Oosterhuis,
    supra note 76).
136
    Edwinton Comm. Corp. v. Tsavliris Russ (Worldwide Salvage & Towage) Ltd (The Sea Angel) 2 All ER (Comm) 634
    (2007); or EWCA Civ. 547 (2007); 2 Lloyd’s Rep 517(2007).�


                                                        201
                                       LAW IN A TIME OF CORONA


      2. Its matrix or context of the contract;

      3. The parties’ knowledge, expectations, assumptions and contemplations as to risk at
         the time of the contract insofar as could be ascribed mutually and objectively;

      4. The nature of the supervening event; and

      5. The parties’ reasonable and objectively ascertainable calculations as to the
         possibilities of future performance in the new circumstances.


 Although this approach has been developed for application at the first of the two levels
 of determination by the court – that is, on whether the event put forward has frustrated
 the contract – it is motivated by the same impetus as that which guides civil law judges
 in making adaptation decisions (adaptation, it should be recalled, is a second level
 decision that deals with the consequence of the initial determination). Judges applying
 the multifactorial approach have stated factors like “fairness and justice” and “demands
 of justice” as the motivating force for the emergent approach.137 It helps forestall the
 possibility that contractually allocated risks between the parties are inadvertently
 reversed and the cause of justice thereby defeated.138
           This approach holds some significance for the development of this area of law in
 the common law tradition. Firstly, it has brought some clarity to the two determinations
 regarding foreseeability and risk allocation or assumption as discussed earlier.139 In the
 enumeration of the multiple factors stated above, factor number (v) deals with
 foreseeability while factor number (iii) deals with risk allocation.140 To illustrate this
 point, in the New Zealand case of Planet Kids,141 one of those in which the approach was
 meticulously applied and the factors considered in extenso, the court had distinct
 considerations, inter alia, of: (a) the contractual clause on allocation of risks (b)
 foreseeability of the event and (c) establishment of frustration.                     In that case, the
 questions revolved around whether a settlement agreement between the respondent city
 council and the appellant institution (wherein the appellant was to be compensated for
 surrender of a property leased from the council under an extant lease agreement) was
 frustrated by the destruction of the property by fire before the date of surrender. By its
 provision, the lease agreement was to be terminated upon destruction of the property.
137
    Id. ¶ 113 .
138
    Lawtext.com, Analysis and Comment: The Sea Angel, Journal of International Maritime Law 13, 388, 390 – 391
    (2007), http://www.lawtext.com/pdfs/sampleArticles/jiml13-6AnalysisDRT260208.pdf (last visited May 15,
    2020).
139
    See supra Section 2.1.5.
140
    See Monichino, supra note 88, text accompanying n. 56.
141
    Planet Kids Ltd v. Auckland City Council NZSC 147 (N.Z.) (2013).


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 The council canvassed this to mean that, having regard to the fire incident, there was no
 leasehold to surrender and the obligation to pay compensation under the settlement
 agreement was thereby frustrated since such a payment would now be radically different
 from what was contracted for. Of relevance was that the settlement was effectively
 hashed out in lieu of an alternative procedure for the acquisition of the property under
 the relevant legislation.
              On the issue of risk allocation, the court, whilst holding that contractual
 allocation of risk could preclude the doctrine of frustration in respect of the concerned
 risk, stated that other material factors could nonetheless frustrate the contract.
 Ultimately, the court came to the conclusion that no determination on risk allocation
 was required by the circumstances of the instant case, since the risk concerned in the
 case was different from that for which provision was made in the settlement. On the
 issue of foreseeability, whilst the court accepted the interpretation that the destruction
 of the property being included as a ground for termination of the lease agreement made
 that event a foreseeable risk, it was merely one of the relevant factors to be considered in
 a multifactorial analysis aimed at ultimately determining the question of frustration.
 Glazebrook J. stated the position of the Supreme Court of New Zealand thus:

               A foreseen event will generally exclude the operation of the doctrine, but
               the inference that a foreseen event is not a frustrating event can be excluded
               by evidence of contrary intention. When an event is foreseeable but not
               foreseen by the parties, it is less likely that the doctrine of frustration will be
               held to be inapplicable. The degree of foreseeability required to exclude
               frustration is high. The supervening event must be one that any person of
               ordinary intelligence would regard as likely to occur. Further, not only must
               the supervening event be foreseeable but its consequences or effects on the
               contract must also be foreseeable. The inference that an event that is
               foreseeable may exclude frustration can also be displaced by evidence of
               contrary intention.142

 The ultimate determination, on the balance of factors, was that the settlement agreement
 was not frustrated. Relevant to that determination were the following factors:


        1. The ultimate achievement of the common purpose of the settlement agreement,
           having regard to the objectives of the individual parties, the said purpose being “to
           settle the Public Works Act dispute and thus to achieve certainty that Planet Kids’
142
      Id. ¶ 158. The court’s exposition conforms to economic analysis that remoteness of a risk may defeat any
      presumption that risk is assumed by the fact of its foreseeability. See supra text accompanying note 123.


                                                       203
                                         LAW IN A TIME OF CORONA


         lease would be terminated, to identify the timing of that termination and to set
         the amount of compensation payable for the consequential closure of Planet Kids’
         business”;143

      2. The balance of hardships that would be against the appellant, which would lose both
         possession and compensation for such loss if the settlement was declared frustrated;
         and

      3. The foreseeability of the risk of termination of the lease.144

 The multifactorial approach would appear to be turning a contextualist bend in the
 common law of contract. The faithfulness of common law courts to the bargain of the
 parties – based on a rhetorical commitment to the principle of sanctity of contract – is
 also reflected in the textualist commitment to the express provisions of the contract.145
 This general approach of not taking liberties with the expressed intention of the parties
 is one key reason why judicial attitude has not moved towards the adaptation practices
 similar to the civil law courts.146 Adaptation allows courts to take exogenous matters (to
 wit, the altered economic balance) into consideration to re-balance the bargain of the
 parties.      The approach, in common law, of terminating the contract first, before
 proceeding on loss adjustment would seem to have avoided such “intrusion” on the
 bargain of the parties. The courts applying the multifactorial approach now appear to
 have imported the contextualist position. Of course, the courts have always recognised
 that the “special exception which justice demands”147 is a rationale for the doctrine of
 frustration. The new approach merely now recognises that the said demand requires not
 just the true construction of the contract but also a consideration of all the relevant
 circumstances that justice demands.148
            In our view however, application of contextualism at the first level of
 determination misses the additional benefit of adaptation and the opportunity to save
 the contract. If the multifactorial approach is to succeed and become widely influential
 across the common law world, there needs to be a reconsideration of the half-hearted
143
    Id. ¶ 96.
144
    See supra note 141, at 164 – 167; see David MacLauchlan, “Frustration” in the Court of Appeal, (June 21, 2013),
    https://ssrn.com/abstract=2283094 (last visited June 12, 2020) (for a criticism of the prior judgment of
    the New Zealand Court of Appeal that was reversed in this case, with the writer’s argument essentially
    anticipating the reasoning in the later Supreme Court decision).
145
    See Gilson et al., supra note 47, at 34–36.
146
    See Baranauskas & Zapolskis, supra note 94, at 203.
147
    Per Lord Summer in Hirji Mulji v. Cheong Yue Steamship Co Ltd AC 497, 510 (1926), as cited in the Sea Angel’s
    case, supra note 136.
148
    See also Jamil Mustafa, Frustration: A New Approach for the 21st Century? (12.00, July 25, 2017)
    http://www.keepcalmtalklaw.co.uk/frustration-a-new-approach-for-the-21st-century-/ (last visited June
    6, 2020)


                                                        204
 2021]                              UNIVERSITY OF BOLOGNA LAW REVIEW                                         [Vol. 6:2


 contextualism implicated in its outcome. Could legal reforms allow a fuller embrace of
 the contextualist implication of this approach by permitting the courts to utilise it, not
 just in establishing a frustrating event for the purpose of terminating the contract, but to
 correct the distortive effect of such an event in deserving circumstances with the aim of
 keeping the contract alive? After all, as we have shown already, the contract-saving
 objective is supported by insights from contract economics and the reality of commercial
 attitudes. What is more, it has been argued by some scholars that contextualism is not
 such a strange animal in the terrain of common law after all, having regard to the roles
 of the old English courts of equity.149



      2.2. EXCUSE IN CONTRACTUAL CLAUSES

 There are a host of reasons for commercial actors not to be wholly satisfied with the
 doctrinal basis for Excuse. Tensions between the fundamental principles of freedom of
 contract and sanctity of contract continue to reflect on the uncertainty in this area. This is
 especially so with the flexible effects and their legal consequences, regarding which the
 doctrinal distinction between the legal traditions tend to be much starker both in the
 degree of flexibility permissible and the structure of the doctrines. Furthermore, the
 “neutral” consequences of the doctrinal grounds deny the parties a variety of other
 options for controlling outcomes. In this regard, the civil law admittedly offers more
 flexibility than the common law system. While it could be argued that parties should
 exercise autonomy in choosing the “better” law to govern their contract, the single
 factor of flexibility cannot be wholly determinative of the overall choice of law. For
 example, English law, for a variety of reasons, is still the most frequently selected as
 governing law in international transactions.150 In this circumstance, it appears a better
 use of party autonomy to go in extenso, in the contract, to state the substantive rules that
 would govern unplanned events and their supervening effects.
            For these and other reasons, commercial practices have evolved solutions by way
 of contractual clauses that give the parties control over the hypothesis and legal
 consequences of such events. These clauses are so commonly utilised and well-developed
 that many of them are fairly standardised in trade custom and usage, thus forming part

149
    See Gilson et al., supra note 47, at 49 & 50 [note, however, that the authors are careful to argue that
    contemporary courts that would play an analogous role to those of fifteenth century equity courts must,
    per force, upgrade to the level of sophistication that would enable them properly contextualise the range
    and complexities of modern economic activities (see id. at 46)].
150
    See Gilles Cuniberti, The International Market for Contracts: The Most Attractive Contract Laws, 34 NW. J. INT’L L. &
    BUS. 455, 475 (2014) (demonstrating, through empirical study, that the factors that privilege English law are
    not always intrinsic to the quality of its rules).


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                                          LAW IN A TIME OF CORONA


 of the lex mercatoria.151 The two notable clauses in this regard are Force Majeure and
 hardship clauses.
            Although the method for drafting Force Majeure or hardship clauses is
 continuously evolving, there is a two-phased structure to them similar to the doctrinal
 grounds for Excuse. The two phases are: (a) defining the events or circumstance, or
 otherwise identifying conditions under which performance, in the manner agreed,
 would be impossible or commercially hard (hypothesis) and (b) stating the legal
 consequence, including stating the protocols for saving the transaction by adjusting the
 mode of performance through future renegotiation and, failing that, an orderly
 termination and, if necessary, allocation of losses (regime).152



      2.2.1 FORCE MAJEURE AND HARDSHIP CLAUSES: THE HYPOTHESIS

      2.2.1.A. FORCE MAJEURE CLAUSES ‐ “EPIDEMIC” ITEM AND PROBLEM OF
 INDETERMINACY
 Force Majeure and hardship clauses are close analogues, respectively, of the stricter and
 the flexible ends of supervening effects in the doctrines. In fact, as the name suggests,
 Force Majeure in contractual practice developed from the force majeure in French
 doctrine.153 The hypothesis of Force Majeure clauses is stated in terms of defining the
 applicable disruptive events (Force Majeure events). Force Majeure events are either (a)
 broadly defined by reference to the classical doctrinal elements of the event such as
 supervening impossibility, unforeseeability and uncontrollability (or unavoidability), or
 (b) by enumeration of the nature or categories of events that are to be regarded as Force
 Majeure event.         In applying the definition technique, parties have been known to

151
    See Peter Mazzacano,             Force Majeure,      Impossibility,  Frustration & the Like:              Excuses
    for    Non-Performance;        the    Historical    Origins    and     Development      of    an     Autonomous
    Commercial Norm in the CISG, 2012 Nordic J. Com.                         L. (Issue 2011 #2) 1, at 54.
    https://www.researchgate.net/publication/228204507_Force_Majeure_Impossibility_Frustration_the_Like
    _Excuses_for_Non-Performance_the_Historical_Origins_and_Development_of_an_Autonomous
    _Commercial_Norm_in_the_CISG/citations (last visited June 17, 2020)
152
    Stating these two parts clearly is important as a mere inclusion of, say, the term Force Majeure as a hypothesis
    without stating the regime could lead to déceçage (incompatibility) if the governing law of the contract does
    not have force majeure as a general doctrine. In such a circumstance, the court cannot fill the gap by allocating
    a legal consequence under the general law. See FONTAINE & DE LY, supra note 41, at 407. See British Electrical
    and Associated Industries (Cardiff) Ld. v. Patley Pressings Ltd. 1 WLR 280 (1953) [where a clause stating
    the contract to be subject to “force majeure conditions” (a term that was not defined) was declared void
    for uncertainty). See Kel Kim, supra note 73, at 296 (where a New York court stated that no “expansive
    meaning” would be given to a Force Majeure clause so as to give recognition to an event that is not specifically
    enumerated therein).
153
    For purposes of clarity, we have used the italicised force majeure for the doctrinal concept, the capitalised
    Force Majeure in the context of contractual clauses and the quoted “force majeure” in contexts which refer
    to both or either of the two senses.


                                                        206
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 sometimes omit or attenuate one or more of the three elements highlighted above. The
 typical events listed in the enumeration techniques are those that foist legal or physical
 impossibility on the parties’ ability to perform.154 Meanwhile, either technique could be
 used solely or in combination with the other. Where they are used in combination, the
 enumerated events usually serve to illustrate the broad definition, but it could be drafted
 to limit it in some cases.155
           While critiques have been developed on the different techniques and approaches
 to the hypothesis of Force Majeure clauses,156 it is useful to highlight here how the case of
 “epidemic” (or, rarely, “pandemic”)157 as a Force Majeure event illustrates some of the
 complications entailed in enumeration-involved approaches, even while underscoring
 some peculiarities of its own.              For example, when considering a list that appears
 definitive, does the absence of an actual event on the list obviate the determination of a
 Force Majeure event otherwise? In a review of the over twenty Force Majeure clauses
 produced in an influential book of precedents,158 “epidemic” is specifically listed as a
 Force majeure event in only six of them. In the circumstances of Covid-19, failure to have
 specifically listed “epidemic” as a Force Majeure event may, generally speaking, limit the
 ability of affected parties to invoke Force Majeure on the basis of the pandemic, especially
 where an outbreak has not (yet) directly affected their location – perhaps due to the
 fortune of location or time. Nonetheless, this would not be solely determinative of the
 question whether a Force Majeure event has actually occurred. Other connected events
 could arise. An example would be where an outbreak of the pandemic elsewhere has
 triggered government containment actions or S.C.D. that directly affected the relevant
 party.159 In addition to the possibility of relying on the item of the Force Majeure clause
 enumerating governmental action, affected parties, it has been argued, also stand a good
 chance of being covered by the item “Act of God”, one of the most common items in the
 enumeration approach to Force Majeure clauses.160
154
    For an extensive overview of Force Majeure events that have been found in an array of international contracts,
    see FONTAINE & DE LY, supra note 41, at 408–13.
155
    See id. at 414.
156
    See id. at 402–18 for an analysis of diverse techniques and approaches to developing hypotheses for Force
    Majeure clauses, and a critique.
157
    Andrew A. Schwartz, Contracts and Covid-19, 73 STAN. L. REV. ONLINE 48, 56-57 (2020). (in supporting
    the assertion that the term “pandemic” is virtually absent in the documentation of Force Majeure clauses,
    outlining the following result from an empirical survey: (i) a zero return was recorded from a search
    conducted on the platform Westlaw in April 2020 for cases on Force Majeure containing the term “pandemic”
    (ii) by comparison, a search for “epidemic” along with the term “Force Majeure” returned 77 results, and
    (iii) finally, to put the foregoing in full context, a search for the term “Force Majeure” alone returned over
    2,000 results).
158
    RODNEY D. RYDER, DRAFTING CORPORATE AND COMMERCIAL AGREEMENTS: LEGAL DRAFTING GUIDELINES, FORMS AND
    PRECEDENTS (2005). see Schwartz, supra note 157.
159
    See Section 3.3. infra., for an articulation of possible scenarios in the context of Covid-19.
160
    See Schwartz, supra note 157, at 57.


                                                       207
                                           LAW IN A TIME OF CORONA


 There is an outstanding problem, nonetheless. Even where “epidemic” is listed as a Force
 Majeure event, there arises the problem of indeterminacy regarding the exact time the
 event commenced. This has implications for determining the timelines for protocols
 that, as would be noted later, are entailed in aspects of the typical regimes applicable to
 Force Majeure. In the circumstances of Covid-19, the date of declaration of a pandemic by
 W.H.O., or epidemic by the concerned national public health authority, could be
 relevant. However, considering that some governments in the worst affected countries
 dithered, for varying reasons, in taking such indicative actions, the risk of indeterminacy
 persists. In this regard, determination will have to turn on the relevant facts of each
 situation, such as when factories actually shut down, or transportation systems went
 epileptic, or upstream contracts began to fail, etc.
            For comparison, a similar indeterminacy exists regarding the war-related
 provisions in commercial contracts (for example, Force Majeure clauses and “war
 cancellation clauses”161 in charterparties). Successfully invoking these clauses depends
 on the answer to the two questions: does a state of war exist and if so, when did it begin?
 This should ordinarily be possible with a proper definition of a state of war. However,
 conclusive proof of the existence of a state of war, or lack thereof, cannot be gathered
 from key markers such as, in the international setting, formal declaration (whether
 unilateral or unanimous),162 or other official communications.163 Meanwhile, repairing
 to the reality on the ground is never easy, considering that hostilities with disruptive
 portents for commercial activities include initial manoeuvring and “belligerent noises”
 that may or may not end in armed conflicts.164 Well-drafted Force Majeure clauses have
 apprehended this problem of indeterminacy regarding war situations (thus, the famous
 “war and hostilities, whether war be declared or not” or similarly worded clauses). For
 most practical purposes, risks of disruption in an epidemic tend to be propagated in a
 similarly not-easily determinable manner as in a state of war.165

161
    A war cancellation clause allows a party to terminate the charterparty where the flag state of the subject
    ship enters into a state of war. The rationale for this clause is to limit exposure to typical liabilities to which a
    ship flying the flags of a state at war is subjected, including seizure as “prize” by combatants of the opposing
    state and liability of nationals of the said opposing state and their transaction to alien enemy laws, where
    applicable.
162
    See D.J. HARRIS, CASES AND MATERIALS ON INTERNATIONAL LAW 887 (6th ed. 2004). (citing provisions of
    international instruments such as Article 2(4) of United Nations Charter as well as the 1949 Geneva Red
    Cross Convention and its 1977 Protocols to support the view that international law has moved from concern
    with the formality of war declaration to a functional approach that recognizes all uses of force or armed
    conflicts).
163
    See Kawasaki Kisen Kabushiki Kaisha of Kobe v. Bantham Steamship Company Ltd. (No. 2) 2 K.B. 544 (1939).
164
    See BRIAN DAVENPORT, War Clauses in Time Charterparties, in FORCE MAJEURE AND FRUSTRATION OF CONTRACT 157-
    58 (Ewan McKendrick & Andrew Rogers eds., 2013). See also Harris, supra note 161 (“[I]t is now exceptional
    for parties to hostilities to regard themselves as legally at war”).
165
    See infra Section 2.1.3. for discussion of a simulated account of risk propagation in a pandemic.


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 Perhaps, the experience of Covid-19 would help move the drafting of clauses enumerating
 “epidemics” as a Force Majeure event towards similar nuance in the future.
            China has adopted a regulatory approach to bringing a level of certainty to the
 issue of determining the incidence of an epidemic. The quasi-official China Council for
 the Promotion of International Trade (C.C.P.I.T.) now issues a force majeure factual
 certificate (Force majeure certificate) to parties who desire a proof of event that
 constitutes Force majeure under their contract.166 The Force majeure certificate merely
 provides a confirmation of the relevant event – including on connected details such as
 the nature, extent, date and length of the event, as well as any governmental order in
 regard thereof – and is not conclusive on a finding whether it then constitutes Force
 Majeure .167 A tribunal seised of the matter will have to determine if, having regard to the
 stated facts, a case for Force Majeure has been established as envisaged in the agreement
 of the parties or otherwise in accordance with the doctrinal basis for force majeure or
 change of circumstance under relevant Chinese legislations.168 Thus, while the role of
 the Force majeure certificate may be limited, its suitability for addressing the risk in
 concern before Chinese tribunals is not in doubt.
            What remains to be determined is the willingness of other national courts or
 international tribunals to give the same evidential weight that Chinese tribunals would,
 to the Force majeure certificate. In other words, having regard to the international
 character of the current pandemic risks, will the issuance of the Force majeure certificate
 be widely recognised in complex international transactions as a backstop or bookend to
 the problem of indeterminacy in Force Majeure clauses? That Chinese law is the governing
 law of the contract will be of little moment where a Chinese tribunal is not the forum.

166
    See Alan Schwartz, Contract Theory and Theories of Contract Regulation, in THE ECONOMICS OF CONTRACTS: THEORIES
    AND APPLICATION 102 (Eric Brousseau & Jean-Michel Glachant eds., 2004). Supra note 38, 116, at 116 [stating,
    as one of the four substantive aspects of proper state role in contract regulation, the supply to the parties
    of “governance modes for the conduct of transactions or the resolution of disputes,” the other three being
    (i) contract enforcement (ii) policing of the parties and (ii)supply of common vocabularies]. Although Alan
    Schwartz identified the legislature as the appropriate state organ for performing this particular governance
    role, we consider this the fitting category for contract regulation represented by the Force majeure certificate,
    having regard to the quasi-official, rule-making status of C.C.P.I.T. as well as the recognition of the certificate
    by Chinese tribunals faced with fact finding and application of rules on “force majeure” cases.
167
    See Sophia Tang, Coronavirus, force majeure certificate and private international law, CONFLICT OF LAWS (March 1,
    2020), https://conflictoflaws.net/2020/coronavirus-force-majeure-certificate-and-private-international-
    law/ .
168
    There are provisions analogous to force majeure and change of circumstance doctrines under Chinese law.
    See, respectively, Interpretation of the Supreme People’s Court on Issues Concerning the Application of the
    Contract Law of the People’s Republic of China (II) (promulgated by Judicial Committee of the Supreme
    People’s Court, Feb. 9, 2009, effective May 13, 2009), art. 26, CLI.3.116926(EN)(lawinfochina.com) and
    Contract Law of the People’s Republic of China (promulgated by Nat’l People’s Cong., Mar. 15, 1999, effective
    Oct. 1, 1999), art. 117, CLI.1.21651(EN) (lawinfochina.com) [the latter provision on force majeure will now
    be replaced by the newly promulgated Civil Code of the People’s Republic of China (promulgated by Nat’l
    People’s Cong., May 28, 2020, effective Jan. 1, 2021), arts. 180 & 194, CLI.1.342411(EN) (lawinfochina.com)].


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 This is because, it is a well-established rule of private international law that matters of
 procedure – including, in this regard, evidence – are determined in accordance with the
 law of the forum (lex fori).169 Therefore, a foreign court before which the Force majeure
 certificate is adduced as evidence may set only little store by Chinese practice regarding
 the document. Potentially, there is also a political dimension to the prospect of this
 document in attaining global acceptability. Therefore, much may depend on the general
 perception of the Force majeure certificate as fairly and evenly issued to all parties that
 are involved and not as a mere convenient shield for Chinese parties.
           Covid-19 has been described as a “black swan” “because its worldwide
 consequences were extremely uncommon, consequential, and hard to predict”.170
 However, recent trends indicate an increase in the frequency of pandemics generally,171
 thus portending the increasing significance of the problem of indeterminacy as we go
 forward. In this regard, the practice of issuing an instrument in the nature of the Force
 majeure certificate could be a welcome practice in international commercial transactions.
 Coordinating institutions of the lex mercatoria have a role to play in standardising it
 through development of principles for its issuance and its acceptability.


      2.2.1.B. HARDSHIP CLAUSES
           Hardship clauses, for their part, address typical developments in change of
 circumstance and not those that necessarily make performance impossible. Hardship
 arises “where the occurrence of events fundamentally alters the equilibrium of the
 contract either because the cost of a party’s performance has increased or because the
 value of the performance a party receives has diminished”.172 Although the foregoing
 definition roughly approximates, in economic terms, the analysis that has been applied
 to some of the doctrinal grounds for Excuse,173 this does not clarify the variety of
 circumstances that may foist hardship on performance. Suffice to say that hardship
169
    See generally TREVOR C. HARTLEY, INTERNATIONAL COMMERCIAL LITIGATION: TEXT, CASES AND MATERIALS ON PRIVATE
    INTERNATIONAL LAW 505 (2009). RICHARD F. OPPONG, PRIVATE INTERNATIONAL LAW IN COMMONWEALTH AFRICA 10
    (2013). GEERT VAN CALSTER, EUROPEAN PRIVATE INTERNATIONAL LAW 3, 270 (2d ed. 2016). But cf.GUANGJIAN TU,
    PRIVATE INTERNATIONAL LAW IN CHINA 44 (2016). (suggesting that this principle itself is not an explicit one in
    Chinese conflict of law rules, although that is not relevant to the point in concern here).
170
    Luis A. Perez-Batres & Len J. Treviño, Global Supply Chains in Response to COVID-19: Adopting a Real Options
    Mindset, 20 AIB INSIGHTS 1 (2013).
171
    See Rayan Morard,              Global Health Security Overview – 2019, WORLD ECONOMIC FORUM
    https://weforum.ent.box.com/v/HealthSecurity-2017(last visited Sept. 7, 2020) (last visited Oct. 4,
    2021). (stating that the “number and diversity of epidemic events has been increasing over the past 30
    years [a trend that] is expected to intensify”).
172
    Art. 6.2.2 Unidroit Principles 2016 (this broad definition is subject to typical conditions such as, that the
    event (a) occurs post-contract (b) is reasonable unforeseeability (c) is uncontrollable and (d) its risk has not
    been otherwise assumed).
173
    See Schwartz, supra note 87.


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 clauses being typical in long-term contracts wherein performance is a series of
 exchanges or deliveries over a sustained period of time,174 the relevant events are
 usually those changes that could be expected to interpose within such long timeframes
 or repetitive cycles.175
           A typical hypothesis has two parts viz: (i) definition of the nature of the operative
 change in circumstance, and (ii) consequences that the change must have on the
 contractual relationship. In some cases, these two parts are preceded by a preamble
 articulating the understanding that underlie the provision. The definition, in addition to
 the typical elements of supervening events such as unforeseeability, uncontrollability or
 unavoidability, may encapsulate the nature of the circumstances in specific or general
 terms. General circumstances could be expressed regarding whether they are of an
 economic or political nature while specific circumstances are a rough analogue for
 enumeration in a Force Majeure clause.                 They detail the operative circumstances in
 practice such as whether it is in respect of price, pricing and exchange rate, change in
 law or regulation or other disruption to market access, as well as market developments
 such as technology obsolescence or diminution in downstream market or off-take. The
 level of details in the articulation of specific circumstances varies by practice.176 There is
 also the possibility of expressly excluding specific circumstances from the hardship
 clause, especially those already covered by definitive review or amendment clauses.177
           The operative consequence specifies the effect – to wit, the nature or degree of
 hardship – of the circumstances on the contract or performance, based on criteria that
 could be objective or subjective. The consequence may also be articulated broadly or with
 diverse levels of specificity.




174
    See Comment 5 to Art. 6.2.2 Unidroit Principles 2016 (without excluding other circumstances, emphasizing
    that “hardship will normally be of relevance to long-term contracts”); see also FONTAINE & DE LY, supra note
    41, at 453 & 455 (emphasizing the particular relevance of hardship clauses to “long-term contracts” and
    “middle or long-term undertakings”).
175
    Broad categories would include, say, change to fiscal factors such as price, pricing and exchange rate, changes
    of a legal or political nature including change in law or prohibition that disrupt market access, as well as
    market developments such as technology obsolescence. See FONTAINE & DE LY, supra note 41.
176
    For an analysis of diverse techniques and approaches to developing hypotheses for Force Majeure clauses, and
    a critique, see id. at 402–18.
177
    Such exclusion may not be conclusive in a determination whether doctrinal Excuse applies, since such
    clauses are themselves subject to doctrinal grounds, such as frustration. See TREITEL, supra note 51, at 899–
    900.


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   2.2.2. FORCE MAJEURE AND HARDSHIP CLAUSES: THE REGIME

Under simple Force Majeure clauses, the legal consequences that typically follow an
effective declaration of Force Majeure event are, in the case of a temporary event,
suspension of performance, and termination of the contract where the event or its effect
does not cease or sufficiently abate within the period of suspension. Of course, there
may be termination without need for suspension where the Force Majeure event
concerned is of such a nature as to make such cessation or abatement unlikely to occur
anytime in the reasonable future. There are also protocols such as issuance of notices in
respect of the declaration of the Force Majeure event or of the suspension or the
termination, as the case may be.

    • Epidemic occurrence with disruption localised in the upstream of the supply chain:
      Disruption is proportional to the duration of the disruption.

    • Simultaneous occurrences with disruption propagated by ripple effect and
      pandemic effect: Disruption depends on the timing and scale of disruption
      propagation (the ripple effect) as well as the sequence of facility closing and
      reopening at different nodes rather than on the duration of disruption upstream.

    • Simultaneous occurrences with synchronous disruptive effects on both supply and
      demand end of the supply chain: The more synchronised the recovery timing of
      facilities, the less likely there will be disruption. In terms of duration of disruption,
      this is more material downstream so that a positive outcome of this scenario is more
      dependent on the quickness in restoration of operations and demand in that node
      of the supply chain.



   2.2.3.    DOES AVAILABILITY OF A CONTRACTUAL GROUND OBVIATE
   APPLICATION OF DOCTRINAL GROUNDS FOR EXCUSE?

To round off this part of the article, we should summarise the relationship between the
doctrinal and contractual grounds for Excuse. Does the inclusion of a Force Majeure clause
in a contract obviate the application of the general law, say, the doctrine of frustration?
Of course, this question is irrelevant where the supervening event or changed
circumstance in concern is specifically enumerated in the Force Majeure clause or
hardship clause.      However, circumstances arise in which such actual event or
circumstance does not appear to have been covered by contractual ground for Excuse.
Does the bare existence of such a contractual ground evince the intention of the parties

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 to limit the grounds to only those specifically stated, so that no other grounds may be
 admitted even under the general law?
 An analysis of the array of cases suggests the following principles:

       • Parties could by the express agreement exclude the application of the doctrinal
         grounds to supervening events.178 This is because, in principle, the parties could
         by agreement allocate risks arising from such events;179

       • However, where on true construction, the court finds that the supervening event
         at issue before the court is out of scope of the express exclusion in the contract
         (such as when “risk materialises in some overwhelming form”180 ), the courts
         would excuse performance on doctrinal grounds, where available181 or under any
         alternative provision of the contract wherein termination may be effected on
         “neutral” grounds;182

       • Furthermore, regardless of how the parties spell it out, no agreement of the parties
         may be read to exclude, say, frustration of a contract regarding an obligation that
         would be illegal at the time of performance, unless the agreement itself is worded so
         that the objective is purely the allocation of economic risk rather than mandating
         performance at the risk of illegality.183 As previously stated, this rule has a public
         policy dimension to it.184

 Finally, on this point, it should be reiterated that the mere fact of the alternative
 application of a doctrinal ground for Excuse, in the absence or upon the failure of
 contractual grounds, does not mean that these two grounds have the same consequence.
 It should be recalled, for example, that the invariable consequence of the doctrine of
 frustration is generally “neutral” – discharge of the obligations and, except in cases of
 severability, termination of the contract as well as adjustment of losses in accordance
 with the law.185 Contractual grounds, on the other hand, offer the parties more latitude
 for control of the consequence. It has been suggested, for example, that severability
 clauses could be influential on judicial determination of the consequences of termination
178
    Rafal Zakrzewski, Material Adverse Change and Material Adverse Effect Provisions: Construction and Application, 5
    L. & FIN. MKT. REV. 344, 349 (2011).
179
    See Kuwait Supply Co v. Oyster Marine Management (The Safeer) 1 Lloyd’s Rep 637 (1994).
180
    Per Rix J., id. at 643.
181
    See Metropolitan Water Board v. Dick, Kerr & Co AC 119 (1918), HL; Jackson v. Union Marine Insurance Co.
    L.R. 10 C.P. 125 (1874).�
182
    See Bank Line Ltd. v Arthur Capel & Co A.C. 435 (1919).
183
    See Ertel Bieber & Co v. Rio Tinto Co Ltd A.C. 260 (1918); Metropolitan Water Board v. Dick, Kerr & Co Ltd , supra
    note 186;
184
    See supra note 81.
185
    See supra Section 2.1.2.


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                                         LAW IN A TIME OF CORONA


 of an unenforceable contract.186 Controlling, at a minimum, the regime of effective
 consequences, even if the bare protocols if not the substantive loss adjustment, is
 reflective of party autonomy and brings the outcome as close as possible to what
 commercial bargainers might desire under the circumstance.




       3.        PRACTICAL APPLICATION IN THE CIRCUMSTANCES OF
       PANDEMIC‐INDUCED SCD

      3.1. BASES OF OUR FRAMEWORK OF ANALYSIS

 Our framework draws from understanding distilled from three streams of insight: (i) our
 above analysis of the doctrinal and contractual grounds for Excuse (ii) the nature of
 O.L.L.S. contracts that govern supply chains, and (iii) the unique patterns of risk
 propagation in pandemic outbreaks.                 The first two streams enable us to apply the
 framework to the analysis of situations of a global pandemic, having regard to the insight
 gained from the third stream. We therefore proceed to briefly discuss the understanding
 from these streams of insight below.



      3.1.1. THE DOCTRINE‐CONTRACT COMPLEX

 There are two key insights from our analysis of the doctrinal and contractual regimes
 that are important for developing a framework for examining impact on global supply
 chain contracts. Firstly, the two regimes have a mutually reinforcing relationship in the
 development of this area of law.               Whilst the lawmakers and the courts have been
 concerned with delimiting the grounds for Excuse, commercial actors continually seek,
 through party autonomy, to give similar effect to developments emergent from
 continually evolving commercial reality.187 In the process, model clauses have evolved in
 commercial contracts that, in many cases, capture the doctrinal grounds, while, in
 others, supplement them or alter their effects or, where possible, even exclude them
 outright.       In consonance with the rule-producing roles of commercial actors,188
 legislators have, in turn, taken inspiration from commercial reality, to varying degrees,
 in legal reforms across the jurisdictions.                      This system-level insight shows a

186
    See FONTAINE & DE LY, supra note 41, at 175–76.
187
    See supra Section 1.1. (for economic explanation of these behaviors).
188
    See IGLP, supra note 68, at 77.


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 two-directional, mutually-reinforcing pattern and is therefore different from the
 “contracting in the shadow of the law” thesis propounded by Mnookin and
 Korhausert189 and adopted by Schwartz in the field of contract law.190
           This leads us to the other insight, which is at firm or transaction level. It is
 possible, and is often the case, that the two regimes apply to the same contractual
 relationship, with the doctrinal grounds providing the default rules whilst rules from the
 contractual regime could be introduced to affect the default rules in the manner
 described above regarding model contracts. The parties could, of course, make their own
 peculiar terms or otherwise adopt, or incorporate by reference, some existing model
 clause.191
           These insights make it possible to develop a doctrine-contract complex as an
 analytical framework for illuminating the potentially systemic risks that a disruptive
 event, with such dynamic impact (both spatial and temporal) as a pandemic, could pose
 to a global supply chain. This could be achieved by combining these insights with an
 understanding of the nature of contacts governing the supply chain, or what we have
 called O.L.L.S. contracts.



      3.1.2. THE NATURE OF “OPERATIONALLY‐LINKED (BUT) LEGALLY SEPARATE”
      [OLLS]

 In our framework, the unit of analysis are the G.V.C.s, which have operational logic that
 is underlain by O.L.L.S. contracts. O.L.L.S. contracts, at base, underlie a set (chain) of
 dyadic relationships in which the success or failure of one contract (determinant contract)
 has implication for the ability or inability of a party in that contract to perform its
 obligation to another party in a separate contract (dependent contract). Now, the area of
 tension192 is between the economic reality of G.V.C.s and the legal doctrine of privity of
 contract. Generally, by that doctrine, a party cannot acquire rights or be saddled with
 obligations under a contract to which it is not a party.193


189
    See Robert H. Mnookin & Lewis Korhauser, Bargaining in the Shadow of the Law: The Case of Divorce, 88 YALE L. J.
    950, 968 (1979).
190
    Schwartz, supra note 165 , at 116–25.
191
    This constant presence of the doctrinal rules that have to be dealt with one way or another is the proper
    Mnookin and Korhausert “shadow”. Schwartz, supra note 87, at 8 (ed. 2009), treats “standard” contracts as
    midway between two other approaches: the first being to allow the default rules under the governing law
    to determine the terms, and the other being to design bespoke terms. All three approaches have economic
    rationale.
192
    See Eller, supra note 24.
193
    TREITEL, supra note 51, at 606–07.


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                                          LAW IN A TIME OF CORONA


 G.V.C.s are conceived as a single, if complex, set of operations aimed at producing and/or
 delivering a good or service to the end user, using spatially and/or organisationally
 dispersed resources. Thus the failure of one of the nodes could disrupt the entire chain
 and, with it, the ability to deliver the good or service. Besides, the good or service may
 have an “owner” in the eyes of the end user or other external participants in the market.
 In fact, it is usually the case that an “owner” has configured the entire chain either from
 the ground up or, more usually, by consummating the final link in the chain that
 consolidates existing operations for the purpose of delivering a specific good or
 service.194 Such an “owner” will usually be the lead firm in a supply chain.195 Therefore,
 these lead firms have an incentive to ensure the performance of all the relevant
 operations. However, where they have no direct contract with some of the participants
 in the chains, the classical remedies in breach of contract, which may come in handy for
 relief at individual dyadic levels, will not be suitable to remedy the overall economic
 failure.
            Salminen has considered this type of limitation in the context of chain-wide
 compliance programs. In his study of models of G.V.C. governance, he has distilled some
 “contract boundary-spanning” governance mechanisms by which lead firms may reach
 beyond the limitations of privity to control other participants in their value chains over
 which they have no direct contractual relationship.196




194
    In more complex systems such as an I.S.N., such links or nodes would be consolidating smaller chains or
    networks into a single system for the purpose of delivering the good or service. See supra note 9. It should be
    noted that these are different from the so-called “spiderless networks” that are “formally independent but
    functionally interdependent firms” employing logic of spatial contiguity or strategic alliances to externalize
    and share infrastructure of resources and capabilities. Spiderless networks tend to be proximate rather than
    dispersed (although in the tech industry, less contiguous firms may form strategic alliances) and, unlike
    supply chains, are typically not directed at bringing a single product or service to the customer. See Ariel
    Porat & Robert E. Scott, Can Restitution Save Fragile Spiderless Networks? 8 HARV. BUS. L. REV. 1 (2018). (for
    differences between Spiderless networks and “collaborative supply chains”).
195
    It may also be a parent company in a corporate group (the head office of an M.N.C., for example). Because
    corporate groups are governed through ownership and managerial control, the economic-legal tension is
    less but admittedly not completely eliminated. See Kurt A. Strasser and Philip I. Blumberg, Legal Models and
    Business Realities of Corporate Groups: Mismatch and Change, 5 CLPE Research Paper Series 3, (2009). In the cross-
    border context, M.N.C.s are subject to additional tensions between the “separate entity” and “enterprise”
    approaches to corporate groups, that may affect, for good or ill, the ability of a parent company to effect
    extraterritorial coordination. See PHILLIP I. BLUMBERG, THE MULTINATIONAL CHALLENGE TO CORPORATE LAW:
    THE SEARCH FOR A NEW CORPORATE PERSONALITY 168-01 (1993). 168 – 201. There are also operational risks
    arising from spatially dispersed operations or, as has increasingly been the case, the increasing delivery
    of their outputs through contract-based strategies embracing third-party suppliers (see supra note 11 and
    accompanying text).
196
    See Salminen, supra note 62. See also infra Section 3.5.1. where we make suggestions on how Salminen’s
    model may benefit discussions on control of supply chains for risks arising out of Excuses.


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      3.1.3. PECULIAR PATTERNS OF RISK PROPAGATION IN A PANDEMIC

 To utilise our framework in the context of the current Covid-19 pandemic, it is important
 to underscore the dynamism of the impacts that will be created by the crisis vis-à-vis global
 supply chain activities. For insight, we rely on an early study of the Covid-19 pandemic by
 Dmitry Ivanov, who aptly describes the nature of pandemic-related supply chain risks in
 the following manner:

              [U]nlike other disruption risks, the epidemic outbreaks start small but scale
              fast and disperse over many geographic regions creating a lot of unknowns
              which makes it difficult to fully determine the impact of the epidemic
              outbreak on the [supply chain] and the right measures to react. Overall, the
              epidemic outbreaks create a lot of uncertainty and companies need a guided
              framework in developing their pandemic plans for [the supply chain].197

 Having regard to the kind of difficulty described above, Ivanov has simulated possible
 disruptive outcomes of the pandemic for the supply chain, based on scenarios that vary
 the interplay of spatial and temporal occurrences of the pandemic events. The three
 scenarios considered are as follows:198


       • Epidemic occurrence with disruption localised in the upstream of the supply chain:
         Disruption is proportional to the duration of the disruption.


       • Simultaneous occurrences with disruption propagated by ripple effect and
         pandemic effect: Disruption depends on the timing and scale of disruption
         propagation (the ripple effect) as well as the sequence of facility closing and
         reopening at different nodes rather than on the duration of disruption upstream.


       • Simultaneous occurrences with synchronous disruptive effects on both supply and
         demand end of the supply chain: The more synchronised the recovery timing of
         facilities, the less likely there will be disruption. In terms of duration of disruption,
         this is more material downstream so that a positive outcome of this scenario is more
         dependent on the quickness in restoration of operations and demand in that node
         of the supply chain.

197
    Dmitry Ivanov, Predicting the impacts of epidemic outbreaks on global supply chains: A simulation-based analysis on
    the coronavirus outbreak (COVID-19/SARS-CoV-2) case, Transportation Research Part E: 136 Logistics & Transp.
    Rev. (2020), (manuscript at 9), available at https://europepmc.org/article/pmc/pmc7147532 .
198
    Id. at 6–9 (discussing the result of the study).


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                                           LAW IN A TIME OF CORONA


        3.2. DEVELOPING THE FRAMEWORK

 The possible supervening effects that a globally pervasive event might have on
 performance obligations in O.L.L.S. contracts range from the stricter effects of illegality
 and impossibility to the relaxed effect of commercial hardships.199 We illustrate that
 range in Figure 1 below:




               Figure 1: The Doctrine-Contract Complex and the range of supervening effects


 Utilising the above framework, we understand that aspects of the same complex event,
 for example Covid-19, could have, on the same contractual obligation but at different
 times, the effects of the forms named in the boxes. It could also have a different effect
 drawn from that range on different contracts in an O.L.L.S. complex. The understanding
 is that the more leftwards an effect is in the continuum, the better is the chance that it
 would be covered by one of the traditional doctrinal grounds, whilst the more rightwards
 effects are likely to be covered by contractual regimes. Also, the more rightwards the
 effects are, the more sophisticated the clauses would have to have been to provide a
 ground for Excuse. The central area is the zone of uncertainty regarding the doctrinal
 grounds. Outcomes here requires deft understanding of the approach of the governing
 law and relevant courts in order to determine the reasonable success of the doctrinal
 grounds or to decide if reliance is better placed on contractual clauses, where available.
 In this regard, the civil law jurisdictions with dual and open approaches to Excuse offer
 more doctrinal certainty than the common law jurisdictions. Within the common law
 tradition, whilst American courts are more likely to make Excuse available under the
 doctrine of commercial impracticability than, say the English courts under frustration, we
 also have insight that the latter is likely to be more available in a consumer contract than
 contracts entered into by presumably sophisticated parties such as supply chain

199
      It is understood that supervening illegality is often considered a type of impossibility, however, we have
      decided to separate it in this framework, having regard to its public policy dimension (see supra note 133).


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 contracts are likely to be.200 Whatever may be the case, well-drafted international
 commercial contracts should cover the entire field with reasonable certainty and are
 also more likely to give the parties wider latitude for bilateral coordination in
 determining the outcomes. Practical application of this framework to the Covid-19
 scenario is discussed below.



        3.3. DIMENSIONING THE SCD IMPACTS OF A PANDEMIC: FOUR SCENARIOS



 In light of the insights previously discussed, and as we will show presently, the impact
 of Covid-19 will travel in waves that would result in diverse forms of supervening effects
 on businesses operations in different regions at different times. Thus, even in the same
 business, the scaling effect could result in Excuse grounds being invoked at increasing
 levels of disruptiveness as the supervening effects become more and more crippling. Some
 of the Excuse grounds will be available in doctrine and others in contract.
              There are other points to make before formulating the scenarios. Firstly, for the
 sake of simplicity, we have excluded significant factors such as the impact of system
 safeguard strategies like resilience measures, as well as other factors such as sector- or
 transaction-specific lead-time for order fulfilment that would normally be taken into
 account in specific cases. The other point is that our scenario assumes a supply chain
 contract relationship that falls in any of the median classes in the five typologies of
 G.V.C. coordination identified by Gereffi, et al.201       This would be anything between
 modular and captive typologies. This is because these models have a dynamic middle
 with supply chain participants that are freer in their agency than, say subsidiaries of
 corporate groups or M.N.C.s in the hierarchical model, but are nonetheless not easily
 substitutable as in the market-based model.
              There are four broad scenarios in which performance of obligations under current
 contracts is open to disruption. Three of them could be referred to as primary scenarios,
 while the fourth is some sort of secondary scenario. These are:


         • Scenario A: Shutdown of business operations could be due to direct impact of the
           pandemic. This will be the case for a firm in a location that has experienced the
           most virulent outbreak of Covid-19, as would for a firm that, even though based in
           a location with less widespread cases, has experienced even one case of the disease
200
      See supra note 94 and accompanying text.
201
      See infra Section 3.5.2.


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                                        LAW IN A TIME OF CORONA


           or has a direct contact recorded amongst its people (which often leads to shutdown
           of facilities).


         • Scenario B: Shutdown could be due to governmental action aimed at containment of
           the pandemic, including proclamations and deployment of military or paramilitary
           units to enforce such orders. It should be noted, however, that a proclamation does
           not always directly order the shutdown of business activities. Sometimes, it merely
           entails official declaration of an epidemic by public health authorities and issuance
           of advisory guidelines that allow firms to determine how normal activities are to be
           adjusted, based on the nature of their operations.202 Sometimes, the nature of the
           business dictates how seriously the advisory is taken. For example, consideration
           of potential tortious liability, reputation risk and corporate responsibility policies
           may provide motivation for relatively early shutdown.


         • Scenario C: S.C.D. could adversely impact production or sales operations. Such
           impacts could include inability to source raw materials due to shutdown by an
           upstream supplier or disruption to global logistics or local transport system, or a
           similar disruption to downstream activities of distributors and customers.
           Sometimes, these impacts may manifest as commercial hardships occasioned by
           worsening macroeconomic conditions such as price inflation, currency fluctuation
           or shortage of supply.


         • Scenario D: It goes without saying, in the light of our understanding of O.L.L.S.
           contracts, that a combination of the above scenarios could have a stacked effect. A
           “stacked effect” occurs where failure to perform by a counterparty under the
           determinant contract adversely affects the ability of the focal firm to fulfil its
           obligations to a different counterparty in the dependent contract, and on and on.
           This scenario of “stacked effect” is likely to be rife in the circumstances of Covid-19
           pandemic and could be exacerbated where there is a mismatch between the
           operative supervening effect in the Excuse regime applicable to the determinant
           contract, on the one hand, and that applicable to the dependent contracts, on the
           other. Two dimensions of such mismatches are discussed below.

202
      E.g. the “state of emergency” declared by Japanese government in April 2020 under the New Influenza
      Special Measures Act stipulates measures that are not mandatory and contains no penalties for
      violations, although a mandatory law may be made under Article 41 of the Japanese constitution.
      See Lawrence Repata, The coronavirus and Japan’s constitution, Tʜ� Japan Times (Apr.     14, 2020),
      https://www.japantimes.co.jp/opinion/2020/04/14/commentary/japan-commentary/coronavirus-
      japans-constitution/ .


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   3.4.       DIMENSIONING THE SCD IMPACTS OF A PANDEMIC: TWO
   MISMATCHES

There are two possible dimensions to mismatches that may arise from scenarios with
stacked effects. The first – mismatch of standards – occurs where failure to perform the
determinant contract is excusable under one of the more relaxed supervening effects
whilst such failure regarding the dependent contract is only excusable under one of the
stricter effects. The other – mismatch of time – is due to time lag between the effects of a
widespread disruptive event on the performance of both contracts, thus creating
disparity in degrees as a matter of fact, even where there is no mismatch of standards in
regimes of Excuse under the two contracts.



   3.4.1. MISMATCH OF STANDARDS

Mismatch of standards is the simpler of the two mismatches and may be illustrated with
the following scenario:

    • The determinant contract is one for the supply of raw material input (Raw
        Material Supply Contract, or simply Raw Material Contract) which has been
        entered into between an intermediate manufacture supplier (Intermediate
        Supplier) and the raw material producer/distributor (Raw Material Supplier).

    • The dependent contract is between the Intermediate Supplier and an equipment
        manufacturer (Original Equipment Manufacturer) for procurement of the
        intermediate manufacture, which is an input in the Original Equipment
        Manufacturer’s finished product (Intermediate Input Procurement Contract,
        Intermediate Input Contract).

    • The Raw Material Contract, in addition to the traditional Force Majeure clause,
        contains a hardship clause that excuses failure to deliver, as well as allows delivery
        to be postponed, renegotiated and/or ultimately terminated without damages, on
        the ground of some commercial difficulty such as currency fluctuation or labour
        shortage, or shortage of raw materials.

    • On the other hand, the Intermediate Input Contract contains only the Force Majeure
        clause that excuses obligations on the stricter impossibility ground, or – to vary
        the scenario while achieving a similar effect – does not expressly provide for
        supervening events, so that performance may only be excused on the applicable
        doctrinal grounds. The governing law, by choice or conflict of law rules, is English.

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                           LAW IN A TIME OF CORONA


• The Raw Material Supplier calls for suspension and renegotiation of supply
 obligations under the Raw Material Contract due to currency fluctuation in its
 local market. While the renegotiation is being worked out, valuable time passes.
 Worse still, agreement cannot be reached eventually, so that the contract is
 terminated without fault.

• There occurs a scenario with stacked effect, as there foregoing developments lead
 to the failure of the Intermediate Supplier to meet its obligation to deliver
 intermediate manufacture to the Original Equipment Manufacturer under the
 Intermediate Input Contract. Yet, failure of procurement is not one of the grounds
 on which the Intermediate Supplier’s own obligation to the Original Equipment
 Manufacturer can be excused under that contract. The traditional impossibility
 ground in the Force Majeure clause, or reliance on the doctrine of frustration, is
 unlikely to excuse the Intermediate Supplier’s failure as illustrated in Figure 2.




                      Figure 2: Simple Mismatch of Standard


                 Straight bold lines: Failure to perform excused
              Zigzag broken lines: Failure to peform not excused




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        3.4.2. MISMATCH OF TIME

 Mismatch of time is more complicated and entails an additional element of time. In this
 case, mismatch of standards may occur, but is not necessary. The standards for the
 applicable Excuse regimes under both determinant and dependent contracts may align
 in principle. For example, the Excuse applicable to both contracts may be the stricter
 impossibility grounds.203 In the scenario of a gradually spreading widespread event, the
 time lag between the full propagation of the disruptive effects on both contracts, thus
 creating disparity in the fulfilment of the standard required of the relevant Excuse. This
 disparity is more likely to occur in scenarios where the more heightened effect is
 propagated in the more upstream contracts of the chain – which, by that positioning, are
 more determinant – thus creating a legitimate Excuse with disruptive effect on the
 downstream, determinant contracts, even if the latter effect is not yet itself considered
 to be of such standard as to provide ground for Excuse. Let us illustrate this mismatch
 with the following scenario:

         • The parties and the contracts remain the same as in the last scenario, with the
            minor adjustment that all contracts in the supply chain contain similar Force
            Majeure provisions excusing performance only on the stricter illegality and
            impossibility grounds.

         • The relevant disruptive event is a global pandemic.

         • A consistent factor is that the country of location of the Raw Material Supplier, being
            “ground zero” of the pandemic, means failure to deliver under the Raw Material
            Contract would always be treated as excusable under doctrine or contract.

         • The key variable in this scenario is the timeline for the spread of the pandemic to the
            other relevant locations and the propagation of its S.D.C. risk on the other contracts.

         • The pandemic is localised in the “ground zero” country for the first two months
            before spreading to neighbouring countries from which alternative raw materials
            could be sourced. The pandemic, again, is contained in that region (Raw Material
            Supplier country and contiguous sources of alternative supply) for another two
            months before spreading to the location of the Intermediate Supplier where it
203
      Admittedly, there could be a mismatch of time based on an initial mismatch of standards that may be
      corrected in time. This is possible where the Excuse regime applicable to the determinant contact, unlike
      that applicable to the dependent contract, is of the flexible kind, so that even if the effect of the disruptive
      event on both contracts is simultaneously commercial at the moment, Excuse may be made only under the
      determinant contract. In time, if the disruptive effect heightens generally (or specifically in the place of
      performance of the dependent contract), the mismatch would be corrected and Excuse would be possible.


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                            LAW IN A TIME OF CORONA


 takes another two months before spreading to the rest of the world, including the
 location of the Original Equipment Manufacturer.




• In the circumstances, the Raw Material Supplier shuts down operations in month
 one due to the direct impact of the pandemic on its operations or in response to
 government containment orders. The shutdown leads to a failure to perform its
 supply obligations under the Raw Material Contract.           Because Raw Material
 Supplier is duly excused under the Force Majeure clause in the procurement
 contract, it appropriately declares Force Majeure .




• At this point, even though the operation of the Intermediate Supplier is now
 disrupted by the failure of its Raw Material Supplier, there is no direct impact of
 the pandemic on its own operations yet. Therefore, its obligations under the
 Intermediate Input Contract cannot yet be excused since disruption to its
 procurement is not a class of supervening event typically recognised in most
 traditional Force Majeure clauses. At best, within the first two months, its effect is
 merely commercial hardship requiring it to change its source of supply, which
 would admittedly be at an inflated price due to decimation of the sources of raw
 material.




• After two months, when the pandemic spreads to the other sources of supply in
 contiguous territories in the region and there is shutdown by alternative raw
 material producers or suppliers, the obligation of the Intermediate Supplier to
 deliver intermediate manufacture to the Original Equipment Manufacturer is still
 not excused under a traditional Force Majeure clause that usually requires direct
 impact making performance impossible.




• As illustrated in Figure 3, it is only after the fourth month that a direct impact of
 the pandemic on the operations of the Intermediate Supplier or the containment
 actions of its national government would clearly give rise to a situation of
 impossibility that would avail it of Excuse under the Force Majeure clause in the
 Intermediate Input Contract.

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2021]                       UNIVERSITY OF BOLOGNA LAW REVIEW                       [Vol. 6:2




Figure 3: Scenario where contractual Force Majeure is applicable to both Determinant and
Dependent contracts



                       Straight bold lines: Failure to perform excused
                     Zigzag broken lines: Failure to peform not excused


Now, to enrich the analysis, let us hypothesise this scenario a little differently , with the
doctrinal grounds being the applicable regime:


    • Such a prospect would turn on whether the Intermediate Input Contract had been
        drafted to clearly exclude the application of the doctrinal grounds. If that is the
        case, the doctrine would be excluded accordingly and the risk of failure to perform
        would lie with the Intermediate Supplier. If not, it is possible that the obligation
        of the Intermediate Supplier could be excused on one of the more relaxed doctrinal
        grounds from month one. This would be possible, for example, under the French and
        German “change of circumstance” laws, assuming any of these was the governing
        law.

    • Furthermore, where the U.C.C. is applicable in one of the American states, it is
        possible that commercial impracticability would also avail Excuse from month one,
        depending on the relevant factual circumstances. This would be the case if it could
        be successfully argued that seeking an alternative source for the input from a

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                                         LAW IN A TIME OF CORONA


         different country, with additional costs and perhaps at an inflated price, is not just
         a mere commercial inconvenience, but an alteration of the “essential nature of the
         performance” and has been occasioned by the “unforeseen contingency” of the
         pandemic.




      • Also, a case of frustration of the delivery contract could be made after month two
         when operations in alternative sources are shut down so that raw material could
         not be procured anyway. Whether a case could be made for frustration from
         month one would turn on further nuance in the factual circumstances. It is
         arguable that, in the jurisdictions that have adopted the “multifactorial” approach
         to the doctrine of frustration, diverse elements of the factual circumstances could
         be combined to make a case for frustration of the purpose of the intermediate
         input contract. We have seen that, although frustration of purpose is theoretically
         meant to benefit the buyer that could no longer take delivery, it has sometimes
         been allowed to benefit the supplier that could no longer deliver.204 An argument
         may however be made that, since this is a supply chain relationship with
         presumably sophisticated parties involved, the relevant factors to be considered in
         a multifactorial analysis will have to be so strong as to rule out the predilection of,
         say English courts, to deny parties of this more relaxed ground for Excuse in a
         non-consumer contract relationship.205 However, it is our view that supply chain
         relationships in fact disclose unique features of their own that make them sui
         generis. This is having regard to the nature of the O.L.L.S.contracts undergirding
         them, which nature makes the remote failure of a determinant contract a
         significant factor to consider in a multifactorial analysis of the frustration of the
         dependent contract.206 The implication of the diverse variants of the scenario is
         Figure 4.




204
    See, e.g., Planet Kids’ case, supra note 141.
205
    See supra note 94 and accompanying text.
206
    See infra Section 3.5.2. for a prefatory consideration of factors arising from G.V.C. coordination models that
    may come up for consideration in such multifactorial analysis.


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2021]                       UNIVERSITY OF BOLOGNA LAW REVIEW                          [Vol. 6:2




               Figure 4: Scenario in which diverse doctrinal grounds are applicable



                       Straight bold lines: Failure to perform excused
                     Zigzag broken lines: Failure to peform not excused


Hypothesising even further, what about a scenario in which the Intermediate Input
Contract contains a robust hardship clause?

    • As illustrated in Figure 5, in such a scenario, it would have been possible for the
        Intermediate Supplier to be excused from month one, where the said clause
        contains some of the typical grounds such as price inflation, shortage of supply,
        etc.




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                                 LAW IN A TIME OF CORONA




            Figure 5: Scenario in which a Hardship clause is applicable across board



                      Straight bold lines: Failure to perform excused
                    Zigzag broken lines: Failure to peform not excused


The relative disadvantage of Excuse under the American impracticability doctrine or
common law frustration should however be noted, since these, unlike the French and
German “change of circumstance” doctrines or even contractual hardship clauses, do not
provide scope for keeping the contract alive under adjusted terms.                     Thus, any
opportunity they may appear to provide for softening the impact of a mismatch in some
of their construal – say, as explained in the text introducing Figure 4 above, under the
provisions of the U.C.C. or arguably through the multifactorial approach – will not totally
match the opportunity afforded by those other regimes in the overall legal consequence.




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      3.5. ESSAYING USE CASES FOR THE FRAMEWORK

 Our framework should find use case in diverse circumstances in which the unit of
 analysis is a supply chain with operational logic underlain by O.L.L.S. contracts. It could
 be useful in a post-S.C.D. scenario where there is need to scan for existing mismatches of
 standards, with a view to guiding quick renegotiation, or to apprehend potential
 mismatches of time, with a view to taking pre-emptive steps ahead of the actual or full
 propagation of S.C.D. risks. It could also be useful as an ex ante tool for testing and
 addressing elements of resilience measures in the supply chain. In this case, it could feed
 into the design of the O.L.L.S. contract that would govern the supply chain or its
 redesign. Yet another use case would be its possible contribution to the matrix of factors
 that may be considered in judicial determination of cases of frustration, where an
 O.L.L.S. contract is in concern. While this article does not propose to dive deep into these
 last two potential use cases, let us explore their possibilities to some degree.



      3.5.1.       MANAGING EXCUSE MISMATCHES IN O.L.L.S. CONTRACTS:
      BORROWING FROM “CONTRACT BOUNDARY‐ SPANNING” GOVERNANCE
      MECHANISMS

 An understanding of the vulnerability of supply chain relationships to S.C.D. arising out
 of Excuse mismatches in constituent O.L.L.S. contracts could illuminate the contribution
 of contract design to the resilience of the supply chain. Mitigating the risks attendant
 thereon requires coordination, which is constrained by tensions between economic logic
 and legal doctrine.207 The two promising models distilled by Salminen in his case study on
 “contract boundary-spanning” governance mechanism, are (i) voluntary industry accord,
 based on a study of the Bangladesh Accord on Fire and Building Safety and (ii) open book
 accounting in German automotive industry.208 As we will highlight shortly, the object of
 Salminen’s enquiry belongs to the “externalities” class of G.V.C. risks and how they might
 be addressed through private governance mechanisms. For example, in the case of the
 Bangladeshi Accord, the concern of the lead firms is compliance with fire safety standards
 across the apparel/garment supply chain to stave off legal and reputational risks. It is not
 concerned with the implication of fire disasters for order placement and fulfilment (in
 other words, contractual performance). The latter is in the class of our own problem of
 focus.209

207
    See supra text accompanying note 199.
208
    Salminen, supra note 62, at 722–26.
209
    Note our classification of G.V.C. risks into two types, supra text accompanying note 21.


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                                       LAW IN A TIME OF CORONA


 The question may be asked then: how adaptable are these approaches to removing, say,
 the risk of Excuse mismatches in the G.V.C.s? To answer that question, we consider the
 two above-stated governance models in Salminen’s study and take a preliminary view
 that the more promising for our purpose is the “open-book accounting’ method. That
 method refers to “practices where actors involved in the same production chain share
 with one another production-related cost information,” with a requirement for such
 sharing to cascade down the chain.210 We consider this model more suitable than the
 voluntary accord model for a number of reasons, including that: (i) it is designed for
 specific supply chains rather than for entire industries and thus fits the context of
 O.L.L.S. contracts (ii) it mirrors the bridging strategies already in use as a resilience
 measure, albeit on a grander scale that looks at information sharing beyond dyadic
 relationships, and (iii) although an independent instrument, its terms cascade down the
 chain through the individual bilateral contracts, thus removing the risk that the system
 might be breached through an inadvertent interposition of a non-party to an industry
 instrument.211
           In our view, coordinating to remove risks of Excuse mismatch in the O.L.L.S.
 contracts is highly dependent on the coordination typology adopted for the supply
 chain. Our preliminary view is that such measures are likely to be more successful in
 those designs – per the five models of Gereffi et al – that give the lead firms a relatively
 strong control of the entire chain.212              A future study might consider the relative
 suitability of the different models for achieving effective “contract boundary-spanning”
 control to remove risks of Excuse mismatches.
           Finally, as previously noted, Salminen’s study concerns mainly chain-wide
 control for externalities that have potential legal or reputational consequences for the
 supply chain operation or the lead firm.                In this regard, there is ample scope for
 interaction (tension, really) between private governance, on the one hand, and public
 law, on the other. Our focus remains solidly within the terrain of private law, in this case
 the law of contract. A more relatable example of “contract boundary-spanning” in the
 context of contract law could be drawn from the asset management field, whereat
 contractual clauses often establish an extended fiduciary duty of certain professionals in
 respect of their advice even in the absence of direct contract with the asset owners or
 beneficiaries of the fund under management. The fiduciary duty of the trustee itself is
 usually a matter of public law. Furthermore, some jurisdictions statutorily extend such

210
    Salminen, supra note 62, at 725.
211
    This is a risk that Salminen, supra note 62, has noted regarding the voluntary accord model (“Problems may
    arise where not all value-chain members are party to the governance contract”). Id. at 738.
212
    See supra text accompanying notes 237 & 238 for an overview of the typologies.


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 2021]                            UNIVERSITY OF BOLOGNA LAW REVIEW                                      [Vol. 6:2


 fiduciary duties to certain categories of advisors to the trustee, such as asset managers
 and consultants.213 However, in jurisdictions where the latter is not the case, fiduciary
 may be extended by the contract of appointment between the trustee and such an
 advisor.214 This inevitably expands the contractual boundary of the asset owners. As an
 exception to the doctrine of privity, certain jurisdictions allow a third party for whom
 the contractual duty provides a benefit to enforce it, regardless of the lack of privity.215



      3.5.2.         MULTIFACTORIAL ANALYSIS IN CASES OF FRUSTRATION:
      PECULIARITIES OF O.L.L.S. CONTRACTS AS POSSIBLE FACTOR

 Could the peculiar operational logic of G.V.C.s form a relevant factor in a multifactorial
 analysis of cases involving the frustration of any of the undergirding O.L.L.S. contracts?
 Such a factor would be relevant for consideration in light of the traditional reticence of
 common law courts to make out Excuse purely on the doctrinal grounds as the
 supervening effect tends towards the flexible end.                      In the context of supply chain
 contracts, we have already formulated dynamic scenarios in which an excusable failure
 of the determinant O.L.L.S. contract could initially affect a party’s performance in the
 dependent contract by way of commercial hardship (shortage of supply, inflation of
 price, etc.). At such a stage, making a case for frustration of the latter contract may prove
 difficult on purely doctrinal grounds in a common law court with a traditional view of
 the subject. Whilst a robust hardship clause may provide alternative scope for Excuse in
 such a case, it is worth exploring how the context of G.V.C.s and O.L.L.S. contracts may
 contribute to an expansive interpretation of the contract for the purpose of determining
 frustration.
           It is notable that occasional developments in industries embedded in global supply
 chains – such as shipping – have sometimes given rise to judicial decisions that take after
 the peculiarities of the industry or those developments. An example is in the string of
 Suez Canal cases216 that buck the general principle that a contract is frustrated where an
 impossibility makes it incapable of being performed in the manner stipulated – for example,
213
    See, e.g.,James Hawley, Keith Johnson & Ed Waitzer, Reclaiming Fiduciary Duty Balance, ROTMAN INT’L J. PENSION
    MGMT., Fall 2011, at 4, 10. (arguing this third-party fiduciary was the implication of the provision of
    Employees Retirement Income Security Act of 1974 29 U.S.C. § 3(38) that defines “investment manager”
    as “anyone exercising discretion over plan assets,” thus extending the duty of “governing fiduciaries”, or
    trustees, to their delegates – in this case, the trustees” advisors).
214
    Id.
215
    UK’s Contracts (Rights of Third Parties) Act of 1999 provides such an exception in cases where the contract
    expressly allows the beneficiary to enforce the right or clearly confers the benefit without explicitly evincing
    the intention of the parties to exclude the beneficiary’s right of enforcement.
216
    These cases are a fallout of the closure of the Suez Canal on shipping and sale of goods contracts following
    hostilities between Israel and some Arab states in 1956 and 1967.


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                                        LAW IN A TIME OF CORONA


 stipulation as to the port and time of shipment217 or as contemplated – for example, as per
 the technical method.218 In the Suez Canal cases, English courts219 and American courts220
 were largely consistent in holding that the closure of the eponymous canal, which had
 necessitated that ships took the much longer route of the Cape of Good Hope, did not
 constitute, as the case may be, an event of frustration or commercial impracticability. In
 the English courts, the decision disregarded whether the Suez Canal route was merely
 envisaged221 or expressly stipulated by the parties.222 Similarly, the increase in time of
 delivery by about a third of the time, in one case,223 or by two and a half times, coupled
 with the doubling of cost of carriage, in another,224 were immaterial to the outcome. The
 American courts similarly denied commercial impracticability in spite of cost overruns
 to various degrees, including in one case where the overrun was over one-quarter of the
 original cost.225
           Analysing some of these cases, Treitel has made the suggestion that the courts
 were influenced by a consideration of the balance of the overall market situation at the
 time performance was called for.226 On the balance, economic upside from some of the
 emergent market conditions more than paid for the increased cost of sail or hire. In such
 an event, automatic termination on the ground of frustration would have opened the
 transaction to opportunistic behaviour by the party making the Excuse. Treitel did note
 the theoretical distortions inherent in these idiosyncratic decisions, considering that, in
 some earlier cases with similar risk in the outcome, the courts had nonetheless stuck
 with principle and made out frustration and the consequent termination. Treitel’s
 proposal by way of remedy is to make termination optional to the party that may be
 prejudiced by the supervening event.227 Of course, there are other solutions. One,
 admittedly more radical, is to enable contract-saving renegotiation or court-ordered
 adaptation similar to civil law jurisdictions. Another is to consider both the onerousness
 effect of the supervening event and other economic net-outcome in the market as part of
 the factors to be balanced in a multifactorial analysis. This second solution faces less
 challenge in path dependency, considering the emerging development of common law

217
    See, e.g., Nicholl & Knight v. Ashton Edridge & Co. [1901] 2 K.B. 126.
218
    See, e.g., Florida Power & Light Company v. Westinghouse Electric Corp. 826 F.2d 239 (1987).
219
    See Tsakiroglu & Co. v. Noble Thorl GmbH [1962] A.C. 93; see also The Eugenia, supra note 130.
220
    See, e.g., Transatlantic Financing Corp. v. United States, supra note 84; see also American Trading & Prod.
    Corp. v. Shell Int’l Marine Ltd. 183. 453 F.2d 939 (2d Cir. 1972).
221
    See Tsakiroglu & Co. Ltd. v. Noble Thorl GmbH, supra note 224.
222
    See The Washington Trade [1972] 1 Lloyd’s Rep. 463.
223
    See The Eugenia, supra note 130.
224
    See Tsakiroglu & Co. Ltd. v. Noble Thorl GmbH, supra note 224.
225
    See American Trading & Prod. Corp. v. Shell Int’l Marine Ltd., supra note 225.
226
    See TREITEL, supra note 51, at 909.
227
    Id. at 910.


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 jurisprudence in this area, as discussed earlier in this article. What we attempt below is a
 preliminary exploration of how the nature of G.V.C.s and the O.L.L.S. contracts throw up
 factors that the courts may consider useful in such multifactorial analysis.
            Among the five factors for consideration in a multifactorial analysis as
 established in the Sea Angel’s case, the second, third and fifth factors outlined earlier in
 this article228 appear to be the more relevant ones in cases of frustration concerning an
 O.L.L.S. contract. To single out “matrix or context of the contract’ for the purpose of the
 current discussion, the Planet Kids’ case demonstrates how a court may, having regard to
 the context, formulate the main purpose of the contract in order to determine if such a
 purpose has been frustrated. In that case, some of the relevant facts of which have
 already been stated,229 in determining whether the relevant event – the destruction of
 the property – had frustrated the main purpose of the settlement agreement, the court
 took the view that such a purpose ought to be the common purpose of the parties in
 respect of the contract. Discerning the common purpose from the contract entailed
 objectively ascertaining the purposes of each party from the contract and from the
 context of its making. In the end, the court determined that the relevant context to the
 making of the settlement agreement was the inconvenience of the available alternative
 (compulsory acquisition of the property by the council and uncertainties as to timeliness
 and quantum of compensation under the governing law of such acquisition). Thus, the
 court stated:

              We consider the main common purpose of the contract was to settle the
              Public Works Act dispute and thus to achieve certainty that Planet Kids’
              lease would be terminated, to identify the timing of that termination and to
              set the amount of compensation payable for the consequential closure of
              Planet Kids’ business.230

 It was that common purpose that the court considered in reaching the determination that
 the contract had not been frustrated since the parties’ objective of certainty and timeliness
 had been achieved by the settlement itself. The subsequent destruction of the property,
 with the consequent termination of the leasehold, was considered mere technicality that,
 having regard to the dictate of justice, was of no moment to the ultimate determination.
            G.V.C.s are context-rich in the nature of the interdependency of the O.L.L.S.
 contracts that undergird them. This interdependent nature could provide illumination
 on the common purpose of the parties. In highly coordinated supply chains, partners in

228
    See supra Section 2.1.6.
229
    See id.
230
    Planet Kids’ case, supra note 141, ¶ 96.


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                                         LAW IN A TIME OF CORONA


 the chain understand that they are collaborators in a series of operations with the
 purpose of bringing a service or good to the end user. Also, the long-term nature of
 many of these contracts signalises the understanding that security of a series of
 exchanges (placement and fulfilment of orders) is a significant factor in the success of
 the operations. For a prefatory comment on how the typologies may provide such
 illumination, let us consider the three determinants of the typologies according to
 Gereffi et al. These are:


      • Complexity of the transaction reflected in the level of information and knowledge
         transfer required, particularly with respect to product and process specifications
         [hereinafter Complexity];

      • Extent to which said information and knowledge can be codified and, therefore,
         transmitted efficiently and without transaction-specific investment between the
         parties to the transaction [hereinafter Codification]; and �

      • Capabilities of supply base (actual and potential) in relation to the requirements of
         the transaction [hereinafter Capabilities].231


 Assigning a “high” and “low” value to a combination of these factors, eight governance
 typologies are possible, although the authors found only five in reality. We set out below
 the five typologies, ranging from that which requires the lowest degree of explicit
 coordination to that which requires the highest, while noting the factors in the
 behaviour of each that could contribute to the illumination of the common purpose of
 the G.V.C. actors:232


      • Markets: These have the least need for explicit coordination, due to high-level
         Codification and Capabilities, but low-level Complexity.                       However, they are
         distinguished from mere transitory, spot markets by the repetition or repeatability
         of transactions therein.          This last factor may establish a “course of dealing”
         modality that, although not explicit in the documented contracts, imports a
         context that may be useful in establishing common purpose.233

      • Modular chains:         These have high degrees of Complexity, Codification and
         Capabilities.      Thus, while maintaining a relatively high degree of supplier
         independence, just as in the Markets, they are brought under control of the lead
231
    Gereffi et al., supra note 8, at 115.
232
    See id. at 113–16.
233
    See supra note 51 (for discussion of the impact of “cause of dealing” on interpretation of contract).


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           firm (buyer) through the high degree of specification in the order-making, even if
           still generic enough to reasonably dispense with the risk of transaction specificity
           in input investment.234 Such order specification could provide a context through
           which common purpose may be established.

         • Relational chains: Here, only Codification is low. Relational chains create complex
           interaction through which mutual dependency between the parties and asset
           specificity in input investment is established. In our view, these two factors create
           a scope to establish common purpose.

         • Captive chains: Here, only the Capabilities of the suppliers are low. Relationships
           present a high degree of dependency on the buyer, thus subjecting the supplier to
           a relatively high switching cost. The buyer, on the other hand, bears a high cost in
           explicit control and monitoring. Again, these factors could provide a possible scope
           to establish common purpose.

         • Hierarchical chains: It goes without saying that hierarchical relationships operate
           solidly in the context of a common purpose, since parties belong to the same
           corporate group that is linked through ownership and managerial control.

 These typologies are, of course, conceptual categories within purely commercial
 contexts. The factors we have highlighted are those that show promise in establishing
 common purpose. Conferring them with legal consequence will have to turn on the
 factual circumstances of the cases. From these, over time and by inductive reasoning,
 legal principles may evolve which redefine the O.L.L.S. contracts broadly by conferring
 legal meaning on their varying operational nexus.




234
      A combination of high input specificity and supplier independence is a factor to be carefully considered,
      since it may leave room for hold-up risk against the buyer, as was the case with G.M. Motors and one of its
      suppliers (see Klein, supra note 39, at 61 & 70 n. 5).


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    CONCLUSION

Our analysis in this article and insights therefrom are useful in the narrow context of
pandemic risks as well as generally, in the wider context of disruptive risks with global
spread and dynamic propagation. Evidence suggests that occurrences of epidemics have
become more frequent in the last few years and the prediction is that this trend is
unlikely to abate any time soon. In this regard, we have reflected on the current
approach to the draft of the “epidemic” item in the contractual enumeration of Force
Majeure events and highlighted how this may now be insufficient in addressing the
nature of the risk. In particular, the current style of drafting the Force Majeure clause
portends a problem of indeterminacy due to the failure to apprehend the dynamic
nature of pandemic risk and associated disruptions.           In making suggestions for
addressing the problem, we have called attention to the standard draft of the “war and
hostilities” item in Force Majeure clauses as an example of a provision that better captures
a risk of similar dynamism. While recognising the role that the Force majeure certificate
issued by the Chinese authorities could play in formally bookending the fact of a
pandemic and alleviating the problem of indeterminacy, we have noted some of the
problems that may arise from the current practice.
        The bigger fish in our pan is the insight that could be gained from an interplay of
the aforesaid risk, on the one hand, and the nature of global supply chain contracts, or
O.L.L.S. contract, on the other. At the core of this interplay is the disparity in the
standards that applicable doctrinal and contractual regimes require, to make out Excuse
for failure to perform a contract. Our starting point was the evidence from economics
and supply chain management literature that commercial actors faced with such
disruptions tend to seek contract- and relationship-saving solutions. The insight from
our analysis is that doctrinal regimes of Excuse with dual structure – such as under the
civil law – provide wider scope for readjustment to achieve contract saving than
doctrines with a unified approach – such as common law frustration. Under the dual
structure of the civil law, the more commercial grounds for Excuse are a separate
doctrine and have separate consequences from the practical impossibility grounds. The
unified approach generally has a stricter standard for making out Excuses on the more
commercial grounds that, in any case, merely form a continuum with the stricter
impossibility grounds under the frustration doctrine.
        However, this insight commends little by way of guide to commercial actors on
choice of law decisions. Firstly, this cannot be the sole basis for choosing the civil law
regimes as the governing law of a contract. Empirical evidence on the overall preference



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for English law in international transactions justifies our caution. Furthermore, utility of
party autonomy in the development of the contractual regime of Excuse – through which
standard Force Majeure and hardship clauses have continued to be developed – has created
a dynamic interplay of the regimes in which parties could contract in and out of aspects
of the applicable law of the contract.
        In a global supply chain situation that is underlain by O.L.L.S. contracts, this
dynamic could lead to mismatches in the Excuse regimes of the contractual chain. A
mismatch occurs where failure to perform a determinant contract is more easily or much
earlier excusable than a dependent contract within the same chain. This heightens the
risk of supply chain disruption in the context of an event of the scale and dynamism of
Covid-19. The doctrine-contract complex, which we developed in this article, provides a
framework by which parties may test the contractual chain against a broad range of
Excuse standards so that mismatches harboured therein may be spotted more easily.
This is useful both in a post-event scenario, as an aid to negotiations aimed at contract
saving. Similarly, it could be useful in an ex ante scenario as an additional tool of supply
chain risk management.       Our framework also contributes to the emerging area of
scholarship exploring the role of legal regimes in G.V.C.s, of which global supply chains
are a feature.




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