LBW

Tuesday, 14 April 2020

Force Majeure viz-a-viz Covid19

Force Majeure

Parties are bounded by agreements voluntarily entered into.

Contractual obligations are in law, expected to be performed. There are certain circumstances which could hinder the performance of contractual obligations by willing parties.

Considering the impracticability of fulfilling obligations due to the lock down of economic activities caused by the scourge of corona virus infection, parties will be unable to meet their obligations which could be regarded as breach of contract.

However, the question begging for answer is, would the inability to timeously perform contractual obligations in the face of the ongoing pandemic make erring party to be liable for breach of contract?

The answer ought to be in the negative. One of the vitiating elements of a contract is frustration.

Frustration is a defense in law which inures to a party to a contract who is unable to meet his contractual obligations by virtue of circumstances beyond his control. This includes war, Act of God etc. It absolutely excuses a party to a contract for being liable for breaching the terms of the contract.

AG Cross River State v. AG Federation & Anor(2012) LPELR-9335(SC) is instructive in this regard:

The doctrine of frustration is applicable to all categories of contracts. It is defined as the premature determination of an agreement between parties, lawfully entered into and which is in the course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstances so fundamental as to be regarded by law both as striking at the root of the agreement and entirely beyond what was contemplated by the parties when they entered into the agreement. N.B.C.I v. Standard (Nig.) Eng. Co. Ltd (2002) 8 NWLR (Ppt.768) Pg.104. Mazin Engineering Limited v Tower Aluminium (Nigeria) Ltd. (1993) 5 NWLR (Pt.295) Pg. 526.

It is the duty of the court to state whether and when frustration has occurred; in other words, to determine the existence of frustration. Frustration occurs whenever the court recognizes that without default of either party a contractual obligation has become incapable of being performed.

The courts have recognized certain situations or events as listed below that constitute frustration –
Subsequent legal changes
Outbreak of war.
Destruction of the subject matter of contract.
Government requisition of the subject matter of the contract.
Cancellation of an expected event.

On the other hand, the principle of force Majeure was emphasized in GLOBE SPINNING MILLS NIGERIA PLC v. RELIANCE TEXTILE INDUTRIES LIMITED (2017) LPELR-41433(CA). It was held as follows:

“Force majeure is a common clause in contracts which provides that one or both parties can cancel a contract or be excused from either part or complete performance of the contract on the occurrence of a certain SPECIFIED EVENT OREVENTS beyond the parties’ control. Such event(s) may include; war, strike, riot, crime, or an event described by the legal term act of God (hurricane, flood, earthquake, volcanic eruption, etc.), prevents one or both parties from fulfilling their obligations under the contract.

Force majeure is generally intended to include occurrences beyond the reasonable control of a party, and therefore would not cover:

Any result of the negligence or malfeasance of a party, which has a materially adverse effect on the ability of such party to perform its obligations.

Any result of the usual and natural consequences of external forces. To illuminate this distinction, take the example of an outdoor public event abruptly called off. If the cause for cancellation is ordinary predictable rain, this is most probably not force majeure. If the cause is a flash flood that damages the venue or makes the event hazardous to attend, then this almost certainly is force majeure. Some causes might be arguable borderline cases; these must be assessed in light of the circumstances. Any circumstances that are specifically contemplated (included) in the contract – for example, if the contract for the outdoor event specifically permits or requires cancellation in the event of rain.

Can this therefore be said to be force majeure when these situations are with us always. Force majeure is something that is unexpected and unforeseen happening; making nonsense of the real situation envisaged by parties.”

It should be noted that in the wake of occurring spread of Corona Virus epidemic and declared lockdown by the government of Nigeria and some States, the defence of force Majeure will avail an erring party to a contract who is unable to meet his agreed obligations but not absolutely as in the defense of frustration. Where the obligation is such that can be performed once the lockdown is relaxed, then the party is expected to perform such obligations.

In NWAOLISAH V. NWABUFOH (2011) LPELR-2115(SC), the Supreme Court held as follows:

“A contract is not frustrated merely because its execution becomes more difficult or more expensive that either party originally anticipated and has to be carried out in a manner not envisaged at the time of its negotiation. Davies Contractors Ltd v. Fareham N.D.C (1956) AC 696, Tsakineglon & Co. v. Noblee Thorh G.M.B.H (1962) A. C 93.”Per ADEKEYE, J.S.C (P. 36, paras. C-E). The Supreme Court also restated that position in the case of LEWIS v. UBA (2016) LPELR-40661(SC).

Conclusively, in a written contractual agreement where the force majeure clause specifies “diseases”, “plagues”, “ or other related terms, it is the writer’s opinion that the COVID-19 outbreak would be declared a force Majeure by virtue of its ravaging effects. In oral contracts or written contracts where no specific term relating to disease is used, it might still be a valid ground if there is an omnibus expression such as “act of God” included.

In either case, the fundamental elements of invoking a force majeure would still have to be satisfied by showing that:

The incident (outbreak of COVID-19) has occurred out of the control of the parties.
It has made it impossible to continue the performance of the contract as usual.
The party invoking the clause has taken all reasonable steps to avoid or mitigate the effect of the consequences of the incident. E.g. In a contract for sale of goods, could the goods have been obtained and delivered via another supplier in the buyer’s location, thus avoiding the transit restrictions? All options must be considered in light of the terms (express and implied) of the contracts, however, because in certain cases, the goods in question must be of a specific type and from a specific origin, as was held in the Indian case of Edmund Bendit and anr. Vs. Edgar Raphael Prudhomme ((1925)48MLJ374).

Recommendation:

Various rules of courts not envisaging circumstances such as COVID-19 pandemic should be reviewed to expressly address such circumstance.

The Head of Courts should instruct court registrars not to charge litigants particularly those that fall under the category to be affected by Order 44(1)(c) Ogun State High Court Civil Procedure Rules, 2014 and similar provisions.

Parties to a suit should not be subjected to punishment over the consequence of occurrences such as Covid-19 outbreak where they were hindered by its effect.

Reasonable moratorium should be accorded to any party who is unable to timeously fulfill contractual requirements due to the halt in economic and social activities by the effect of the spread of Covid-19 in order to save the time of the court, the time and money of the litigants.


Reference:

Esq-law.com/tha-applicability-of-the-doctrine-of-frustration-force-majeure-to-business-contracts-in-light-of-covid19

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