The year 2020 has been particularly ridden with bad news, perhaps the biggest of them all is the COVID-19, more popularly referred to as coronavirus which was declared a pandemic by the World Health Organisation on March 11, 2020. As at today, according to Worldometer, the coronavirus is affecting 162 countries and territories around the world. There are 185,461 infected persons around the world, about 7,332 of whom have died from the epidemic.  The rapidly spreading COVID-19 has continued to topple life around the world with tightened mandatory quarantines in countries like the US and European cities where many stores, schools, offices, parks and restaurants remain closed. It is not news that since the Disease spiralled in February that the global stock market has lost more than 20 per cent value. In the entertainment sector the NBA, English Premier League, Formula 1, UEFA Champions League, and Coachella have all been Suspended. The Tokyo Olympics 2020 are also rumoured to likely be postponed due to this global outbreak. That is broadcasting and distribution rights of over 30 Billion USD on hold indefinitely in most cases. The question whether the severity of this outbreak is such that it enables companies to temporarily (or permanently) be excused from the performance of their contractual obligations is being asked by many companies around the world. The answer, as is frequently the case with legal questions, is, it depends. This paper will, therefore, discuss the impact of pandemics, particularly the COVID-19 on contracts with particular focus on the doctrine of force majeure.

WHAT IS A PANDEMIC?

A pandemic in simple parlance is a disease epidemic that has spread across a large region, for instance, multiple continents, or worldwide.

WHAT IS THE FORCE MAJEURE?

Force majeure, which literally translates from French as “superior force” is a legal doctrine under which a party may be relieved from liability or non-performance when acts of God such as floods, earthquakes, wars, terrorism, government restrictions and other unforeseeable circumstances prevent the fulfilling of a contract. A problem, however, surfaces at this juncture because most force majeure provisions are unlikely to list disease, epidemics, or quarantine as specific force majeure events.

The Court of Appeal has also defined force majeure in Globe Spinning Mills Nigeria Plc v Reliance Textile Industries Limited (2017) LPELR-41433 (CA) as something that is unexpected and unforeseen happening, making nonsense of the real situation envisaged by parties.

A force majeure clause would typically cover three issues; the list of several categories of events that would constitute a force majeure; steps that the party invoking it must take and lastly, the legal consequences of such force majeure event.

FORCE MAJEURE, A CREATURE OF CONTRACT

Force Majeure, to a large extent, is a creature of contract although may be supplemented by statute. Whether a force majeure has occurred and the parties’ obligations in the event of such occurrence largely depend on the contract rather than law. The Courts would not take it upon themselves to make contracts for parties and are always reluctant to read meanings into contract terms on which there is no agreement. This much has been stated by the Supreme Court in BFI Group Corporation v Bureau of Public Enterprises (2012) LPELR-9339 (SC) and Baker marine (Nig) Ltd v. Chevron (Nig.) Ltd. (2006) 8-9 SCM 103.

ELEMENTS OF A FORCE MAJEURE EVENT

1. Must be beyond the affected party’s control
2. Must not be reasonably foreseeable by the affected party
3. The effects of such an event cannot be avoided by the affected contracting party taking appropriate measures.

IS COVID-19 A FORCE MAJEURE EVENT?

The coronavirus outbreak presents an inimitable situation because it is a blend of both a naturally occurring component (the virus) and a government action component (mandatory quarantine measures). There is, therefore, no simple answer to whether the coronavirus qualifies as a force majeure event. Each particular transaction, contracts and governing laws would have to be examined individually. Where a contract contains a force majeure, one would obviously have to first look at the specific language in the applicable contract to see whether or not epidemics, governmental restrictions or other relevant event or actions are explicitly covered. Where they are not, the governing laws and statutes would be the guiding light.

WHERE THE CONTRACT MAKES SPECIFIC PROVISION FOR PANDEMICS

Where a contract has specific provisions which include pandemics, disease or outbreaks as force majeure events, there is usually no issue as such clause would ordinarily provide for the steps to be taken upon the occurrence of such event. The COVID-19 is clearly covered in such an instance having been declared by the World Health Organisation as a pandemic on March 11, 2020.  It may also be possible that the outbreak will be caught by the force majeure clause if it includes events such as acts of any government or regulatory body where such bodies impose restrictions in response to an outbreak, such as travel bans or enforced quarantine zones or periods.

WHERE THERE IS NO PROVISIONS FOR FORCE MAJEURE CLAUSE.

This is where the problem lies. In the United States, in the event that a contract lacks a force majeure provision, then the parties may seek protection under the common law doctrines of the impossibility of performance, commercial impracticability or frustration of purpose. The Chinese law which we are considering because China is one of the largest production hubs of the world and also where the virus was first discovered, is wider in perspective. Chinese statutes expressly define force majeure as “any objective circumstances which are unforeseeable, unavoidable and insurmountable.” Article 180 of the Civil Code and Article 117 of the Contract Law exempts the affected party from liability in such instance.

The United Nations Convention on Contracts for the International Sale of Goods (CISG) also provides that a party is exempt from liability for a failure to perform any of its obligations if it proves that the failure was due to an impediment beyond its control and he could not reasonably be expected to have taken the impediment into account at the time of the contract or to have avoided or overcome it.

In Nigeria, what constitutes a force majeure, like is the case in the US is largely dependent on the parties’ contract. The Courts would, therefore, have to look at the elements of a force majeure event in deciding if such occurrence qualifies as one. The COVID-19 is an event outside of the affected party’s control, which would ordinarily fall within the ambit of force majeure if parties have simply provided that force majeure is any event outside a party’s control.

On foreseeability, outbreaks such as this would probably not normally be considered as unforeseeable given the many recent outbreaks of bird flu, Lassa fever, and viruses including the SARS epidemic of 2003. However, the more severe domestic and global scale of lockdown, the WHO declaring the outbreak as a pandemic on March 11, 2020, and the China Council for the Promotion of International Trade (CCPIT) awarding the first Force Majeure certificate for the new coronavirus (2019-nCoV) to a supplier on February 2, 2020, have shown that this outbreak is quite novel and far-reaching. The affected party could also not have avoided the outbreak as this is an external factor far beyond its power. It is, therefore, our opinion that having fulfilled the elements of a force majeure, a claim may be validly made if well put together with a combination of facts and figures.

EFFECT OF COVID-19 ON CONTRACTUAL OBLIGATIONS

1. Again, the specific wording of each clause of the contract must be considered on its own merits. In Seadrill Ghana Offshore v Tullow[2018] EWHC 1640 (Comm), Teare J stated that, in order for a party to rely on an event of force majeure, it must be the sole operative cause of the inability to perform. That means where a party is affected by COVID-19, but there is also some other reason why it cannot perform its obligations, then it cannot rely on the force majeure clause.

2. Furthermore, where there are alternative methods of performance, the defence of force majeure will not apply. Thus, if a party is prevented from performing its obligations in a particular manner as a result of the COVID-19, then alternative methods of performance should be considered.

3. Certain contracts may also specify that parties take reasonable steps to overcome a force majeure event. What is “reasonable” will however be subjective as considerations such as the nature of the contract, contractual obligation among other things would have to be made. In the case of the COVID-19, it would, therefore, be important to consider parties’ practical steps that have been taken to limit its impact.

4. It is important to check the notice provisions of any force majeure clause to check whether a notice is required when it is required and what information it must contain.

WHAT TO DO IF MAKING A COVID-19 FORCE MAJEURE CLAIM

1. The affected party must give notice as soon as is practically possible to trigger force majeure protection under a force majeure clause or under the statute.

2. The individual receiving the notice should immediately share same with its legal department for analysis and preservation of its rights.

3. Save all documents related to the force majeure event, e.g., national, and local government regulations, news about the coronavirus outbreak, quarantines, restricted travel etc.

4. Parties should work together to try to mitigate damages.
5. Gather evidence and be prepared for litigation or other forms of dispute resolution.

WRONGFULLY DECLARING FORCE MAJEURE

It is pertinent to note that where a party wrongfully declares force majeure, it may be in breach of contract which would entitle the other party to claim damages. It is, therefore, necessary to take caution when seeking the defence of “force majeure.”

CONCLUSION/RECOMMENDATION

Typically, a force majeure event is any circumstance, not within a party’s control. In our experience, many contracts have a template list of what constitutes force majeure such as Acts of God, terrorism, war etc. However, it is important to have an exhaustive list when drafting the force majeure clause. The COVID-19 has been a major eye-opener and going forward; it is advised that clients include specific reference to epidemics, pandemics and other disease outbreaks or disasters imaginable in their force majeure clauses to capture a wide range of occurrence and better protect themselves. Finally, we must conclude on the note that force majeure scenarios will always be fact sensitive and highly dependent on the specific wording of the contract between the parties. Thus one ought to seek legal advice when in doubt.