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As the coronavirus continues disrupting global supply chains, hitting businesses' bottom lines hard enough to hurt, attorneys on the front line expect litigation to follow.

Lawyers expect to see breach-of-contract lawsuits between companies facing major supply-chain disruptions. Disputes are already surfacing as U.S. companies get notices that their China-based vendors of parts or materials can't honor contracts because of the "force majeure" event—meaning unforeseen, uncontrollable circumstances—brought about by coronavirus and mass quarantines.

The potential scope of future litigation is enormous.

"As of March 3, China issued 4,811 force majeure certificates," said Joshua Sandler, partner at Lynn Pinker Cox & Hurst in Dallas, who added that the total value is $53.79 billion. "The impact, then, on nearly every U.S. supply chain is going to be severe. It could mean every U.S. supply chain could come to a halt, if these Chinese partners or companies stop, or try to excuse their nonperformance of a contract."

Force majeure

When companies enter contracts with each other, it's very common to include a force majeure clause, explained said Nicholas J. Ellis, senior counsel in Foley & Lardner in Detroit. If one of those companies sues the other, then the defendant can invoke the force majeure clause to avoid liability for breach of contract.  Some of these provisions are pretty loosely worded, and may encompass coronavirus disruptions, but others are narrowly written and coronavirus won't apply.

"We do a lot of supply-chain work, and we are seeing a lot of concern over this issue, and we are seeing a lot of force-majeure events come up," Ellis said.

But just because one company declares a force majeure event, lawyers say that doesn't mean litigation is imminent.

Ellis said that at this point, most parties just want to manage the problem and get their operations back on line. However, at some point, companies will begin asking who is responsible for the costs. If they can't agree on a resolution, that's when they file lawsuits.

Even if two companies are regular partners and highly motivated to work out disputes, such cooperation could break down if the business disruptions are too great for one of the companies to handle.

Neel Lane, partner at Norton Rose Fulbright in San Antonio, said that if a company files for bankruptcy, the bankruptcy court appoints a trustee or debtor-in-possession to manage the company's assets. That person will not care about the bankrupt company's relationship with its vendor. The trustee, whose main job is recovering as many assets as possible in the bankruptcy, will not hesitate to sue the vendor, said Neel.

Sandler, the Dallas commercial litigator, added that when a company gets sued for breaching a contract, it may have to defend itself by bringing its suppliers into the suit.

For example, imagine a U.S. smartphone company that has contracted with a Chinese plant to assemble its devices. If coronavirus has shut down the Chinese facility, so that it's not making any smartphones, that may be a valid defense to breaching its contract. The smartphone company may want to keep its business relationship with the Chinese facility. However, the U.S. smartphone company probably has other contracts to provide devices to retail stores. What happens if one retail store sues the smartphone company for failing to live up to its contract?

Sandler noted, "It has repercussions, like the ripples of a pond."