Introduction

The aviation sector is one of the worst hit by the global effect of Covid-19 pandemic. The global growth and gains recorded in the aviation industry in the recent years were practically eroded due to the pandemic. The outbreak of the pandemic led to the imposition of travel restrictions and suspension of flights in a global effort to contain the spread of coronavirus; while allowing only humanitarian and essential flight services.

For the first time in global history, over 90 % of the citizens of the world were restricted from travelling; either to return home or to destinations of choice. Aviation and airport operations were virtually brought to a halt .In most part of 2020, the industry was on a survival mode crippled by loss of traffic and revenues. It was estimated that by the end of 2020, the airlines would suffer a reduction of over 4.6 billion passengers globally with a projected revenue loss of over $97 billion [2].

In Nigeria, the pandemic took a serious toll on the nation’s aviation industry. According to the Chairman of Airline Operators of Nigeria ( AON), Captain NogieMegisson, at the beginning of the pandemic, the domestic airlines lost the sum of N360 billion with about 120 aircrafts grounded at various airports across the country[3].

For Nigeria’s aviation industry, IATA estimated a loss of over N160.58 billion in revenue, approximately 2.2 million passengers and about 22,200 jobs in 2020[4]. Following the outbreak of the pandemic and the closure of airports and suspension of flights, Nigeria’s domestic airlines lost about N21 billion monthly[5].

It was estimated that about 25 million aviation jobs and 100 million travel and tourism jobs across the globe were at risk[6] Indeed, airlines in many countries, embarked on massive job cuts and redundancies. IATA expressed concerns that revenues of airlines would drop significantly in the year 2020 and many airlines faced the risk of bankruptcy without government aid.[7]

Covid-19 pandemic has tremendous legal implications for airlines in the area of aircraft leases.The pandemic and governmental restrictions imposed thereby, raise concerns as to whetherforce majeure clause and the common law doctrine of frustration would have significant impact on the lease agreement

This article seeks to examine the scope and extent of the application of force majeure clause and common law doctrine of frustration to aircraft leases; in the light of hell or high water clause where such is included in an aircraft lease.

Force majeure clause : A force majeure clause is a clause which parties to a contract have included in their contract to excuse a party from breach, where performance has been rendered impossible due to unforeseen events outside the control of the parties. An event of force majeure merely suspends a party’s contractual obligation and does not necessarily terminate it. The contract continues to subsist until the obligation is eventually fulfilled, in so far as it remains capable of being fulfilled[8].

Force majeure has no specific definition and what will constitute an event of force majeure depends on how each specific contract is drafted. Generally, whether Covid-19 pandemic would constitute a force majeure event will depend on the existence of terms such as “national emergency,” “governmental restrictions”, “infectious disease“, ‘pandemic or epidemic’[9] in the contract.

Parties to a contract are free to stipulate that a pandemic or epidemic will constitute a force majeure.[10] Other terms which may constitute force majeure include “acts of God, such as fire, floods, earthquakes and other natural disasters. Force Majeure cannot be implied in a contract in which it was not included expressly by the parties.

The courts construe force majeure clause very strictly and any ambiguity is construed against the party relying on the same.[11]

Under the English law, a party relying on force majeure will be required to prove that[12]:

The performance of the contract was rendered impossible as a result of an event of force majeure i.e, Covid-19 pandemic ;
The event is the sole reason for not meeting the obligations under the contract;
The party’s inability to perform the contract was as a result of circumstances beyond his control;
The event was not anticipated by the parties at the time the contract was made;
The party took all reasonable steps to avoid or mitigate its consequences. It is not sufficient to show that the relevant party’s obligationshave just become more difficult or expensive to perform.
A party relying on force majeure must comply with the requisite provisions in the force majeure clause such as the requirement for giving of notice of force majeure and the likely duration of the force majeure. Failure to comply with the force majeure provisions is fatal to the party relying on the same- Global Spinning Mills Nigeria Plc v. Reliance Textile Industries Limited.[13]

Common law doctrine of frustration: A party may rely on the doctrine of frustration, where force majeure is not included in the contract. Frustration means that a contract may be discharged because circumstances exist, that either make it physically or commercially impossible to fulfill the contract or that mean the obligations thereunder are radically different from those undertaken when the contract was entered into.[14]

Frustration occurs when an unforeseeable intervening event, through no fault of either party , so significantly changes the core of the contract, that it would be unjust to hold the parties accountable to the strict contractual terms in the light of the new circumstances.[15] Unlike a force majeure, a successful claim of frustration ends the relationship between the contracting parties, rather than suspending the contractual obligations[16]. In these circumstances, parties would no longer be bound to perform their contractual obligations.[17]

The common law imposes a high evidential burden on a party seeking to invoke the doctrine of frustration in order to be discharged from his obligation under a contract. Therefore, mere hardship, inconvenience or material loss will not frustrate a contract- an event of frustration must be so fundamental as to strike at the root of the contract, rendering further performance impossible[18].

Frustration of contract will not be allowed by our courts where from the terms of the contract, the parties contemplate the possibility of such an intervening circumstance arising[19] or where the supervening event was self-induced by a party.[20]

In Nigeria, a successful plea of frustration of contract may lead to any of the following results, depending on the circumstances of each case:

Parties are discharged of all obligations under the contract.[21]
A claim for return or refund of money had and received for consideration that failed can be made by either party. [22].
Breach of contract where the breach occurred before the frustrating event.[23]

A party seeking to rely on the doctrine of frustration should carefully consider whether termination of the contract is the desired outcome. If the contractual relationship is one that the party wishes to continue when the current situation ends, it may be worthwhile trying to negotiate a suspension of contractual obligations.

Aircraft leases: Aircraft leases require special consideration in the context of force majeure and frustration. Aircraft leases are typically ‘hell or high water’ agreements (which means that the lessee’s obligations must be performed no matter what happens ,and regardless of any difficulties it has in doing so- and therefore even without clear cash inflow , airlines are still liable to make lease payments.

Most aircraft leases (be they operating or finance lease) typically contain ‘hell or high water ‘clause. It is also common for such lease agreementsto stipulate that the aircraft is delivered ‘as is ‘ and ‘where is’ basis. Both clauses leave the lessee helplesswhen supervening circumstances occur[24].Generally, force majeure clause is rare in such leases but where it is included in the lease agreement, whether it can be enforced depends on its literal text and governing law of the contract .[25]

The inclusion of ‘ hell or high water’ clause renders the lessee unconditionally, completely and absolutely bound to pay the aircraft lease rental notwithstanding the unforeseen circumstances which have affected the airline’s operations[26]. A leading authority in the application of hell or high water clause is General Electric Capital Corp. v FPL Services Corp.[27]The court held that in view of the hell or high water clause provision in the equipment lease agreement, the defendant could not rely on supervening impracticability or frustration to discharge its obligation to make lease payments.In Olympic Airlinesv.ACG[28], the court, while applying hell or high water clause, held that the risks inherent in an aircraft lease are to be borne by the lessee and that it is forbidden to claim force majeure or frustration of contract.

It is important to note that hell or high water clause is not absolute. The US courts have refused to enforce hell or high water clause, where willful or intentional act of the lessor has impaired the lessee’s ability to obtain the benefit of its bargain under the lease or where the lessor is in violation of public policy.[29]The court may also not enforce the clause if the lessee proves that the lessor did not fulfill condition precedent for lessee’s performance of its obligation to arise.[30]

The implication of Covid -19 pandemic on aircraft lease may vary depending on the terms and conditions set out in each particular agreement and the governing law thereof.[31]

The rights of a party as regards a force majeure event will therefore be determined by the contract and a detailed review of the scope of the definition of force majeure as well as the provisions set out in the contract. [32]Accordingly, whether or not the lessee will be able to rely on force majeure or other supervening events such as frustration is dependent on the literal text and governing law of the contract. [33]For example, the French Civil Code[34] enacts a general principle of force majeure applicable to all contracts. Thus a party seeking to rely on force majeure under the French law must satisfy the requirements stipulated therein .However, parties are free to exclude force majeure or modify its scope in the contract[35]. It is to be noted that under the French Civil code[36], a party’s obligation to pay rent remains, despite force majeure, although the rent may be deferred or delayed.

Conclusion

The presence of hell or highwater clause in an aircraft lease agreement has significant impact on such leases as it impairs the ability of a lessee to invoke a force majeure event or frustration. Therefore, whether or not the lessee will be able to rely on force majeure or other supervening events, such as frustration, is dependent on a detailed consideration of the contractual provisions as a whole.The caselaw points to the fact that the presence of hell or high water clause provision in a lease agreement, prevents a lessee from relying on supervening impracticability or frustration to discharge its obligation to make lease payments.

It may not be a wise step for lessors to repossess the aircraft or terminate the lease agreements – or to initiate enforcement action – at a time of market uncertainty thrown up by Covid-19, as it would be very difficult to see a willing buyer given that the global demand for flying is at its low ebb.

The lessors need to take business decision based on the commercial reality brought about by Covid-19.The lessors may consider reaching an agreement with the air carriers to offer rental holiday and defer payment up toastated period witha payment plan which will coverany unpaid rents.

By Ugo Ezeugwa Esq, LLM[1]

Ugo Ezeugwa, LL.M,[email protected], 08168358055, Managing Partner, StrongTower&Barfields, Lagos, Nigeria. The contents of this article are a general guide on the subject-matter and should not be construed as legal advice. Concerned persons are advised to seek legal advice of their counsel on specific
[2] www. International airportreview.com/article/1, ACI Global reports, accessed on 17 August, 2020.

[3] www. msn.com/en-za/news/other/covid-19-nigeria-s-airlines-have –lost-n360billion-so-far-operators/ar-BB120Mob

[4]www.msn.com/en-za/news/other/covid-19-future-of-nigeria-s-airlines-aviation-sector-depends-on-fg/ar- BB134vr9

[5]www.premiumtimesng.com/news/headlines/391697-nigerias-aviation-industry.loeses-n21-billion-monthly-to.covid-19-minister.html

[6]www.nairametrics.com/2020/05/17/covid-19 accessed on 17 August, 2020.

[7] www. Desmogblog.com/topics/air.transport accessed on 17August, 2020.

[8] Covid-19 : Act of God ( Force Majeure or Frustration ) in Law ? By S.P.A Ajibade & Co www.spaajibade.com/resources/covid-19 accessed on 13 June, 2020.

[9] The WHO declared Covid-19 outbreak, a pandemic on 11 March, 2020.

[10] CA, Paris, 26 September 2018, N. RG 15/09123.

[11] Covid-19: Force Majeure and Frustration of Contracts by Dillon Eustace www.iclg.com/briefing/11992 accessed on 11 March, 2020.

[12] Covid-19: Force Majeure, Frustration and next steps, by Ron Nobs, Paul Thwaite & Harrison Wall of Stephenson Harwood www.shlegal.com/news/covid-19-force-majeure accessed on 11 March, 2020.

[13] (2017) LPELR-41433 (CA).

[14]A-G Cross River State v. A-G Federation (2012) 16 NWLR ( Pt. 1327) 425 at 460 .See also Mazin Engineering Limited v. Town Aluminum ( Nig.) Ltd (1993) 5 NWLR (pt. 295) p.526; Adax Petroleum Dev. Nigeria Ltd v. LoycyInvestment Company Ltd & Anor (2017) LPELR- 42522 (CA).

[15] Legal Implications of the Covid-19 Pandemic on the Nigerian Aviation Sector, By George Etomi, www.lexology.com accessed on 10 June, 2020.

[16] Id.

[17]A-G Cross River State v. A-G Federation (2012) 16 NWLR ( Pt. 1327) 425 at 460 .See also Mazin Engineering Limited v. Town Aluminum ( Nig.) Ltd (1993) 5 NWLR (pt. 295) p.526; Adax Petroleum Dev. Nigeria Ltd v. LoycyInvestment Company Ltd & Anor (2017) LPELR- 42522 (CA).

[18] The Impact of Covid-19 on aviation finance, By Richard Hakes ,Partner Victoria Westcott, partner, Florent Rigaud, counsel, Spiros Zavistas, senior counsel, Ashleigh Standen, associate, Rohan Soni, associate, and Deena Smith, trainee www.lexisnexis.co.uk accessed on 11 July, 2020; see also Nwaolisah v. Nwabufoh (2011) LPELR – 2115 (SC); B.O Lewis v. United Bank for Africa Plc, (2016) LPELR -40661 (SC).

[19] Federal Ministry of Health v. Urashi Pharmaceuticals Limited (2018) LPELR 46189 (CA).

[20] Jacob v. Afaha (2012) LPELR7854 (CA).

[21]A-G Cross River State v. A-G Federation; (2012) 16 NWLR ( Pt. 1327) 425 at 460 .See also Mazin Engineering Limited v. Town Aluminum ( Nig.) Ltd (1993) 5 NWLR (pt. 295) p.526; Adax Petroleum Dev. Nigeria Ltd v. LoycyInvestment Company Ltd & Anor (2017) LPELR- 42522 (CA).

[22]UBA v. BTL Industries Ltd (2006) LPELR- 3404 (SC).

[23]Nospecto Oil & Gas Ltd v. Kenney &Ors (2014) LPELR-23628 (CA).

[24] Hell or High Water Clause : A stumbling Block for lessee in the Aviation Industry, Rohit Strivastava&RanjetSoni accessed at www. scconline.com /blog/post/2020/06 on 12 September, 2020.

[25] The Impact of Covid-29 on aviation finance, op.cit at note 18.

[26] Rhythm Hues Inc., v. Terminal Marketing Co., inc.,o1 Civ.4697 (DAB) (GWG) (SDNY May 4, 2004).

[27] 986, F. support.2nd 1029 (N.D Iowa 2013)

[28] {2013} EWCA Civ. 369.

[29]Equitex Inc v. Ungar 60 P. 3d 746, 750 ( Colo. App. 2002).

[30]Wells Fargo Bank Minn. Nat’l Ass’n v. Nassau Broad Partners,LP, 01 Civ. 11255 (HB), 2002 U.S. Dist. LEXIS 17191, at 6 (S.D.N.Y.Sep.,12,2002).

[31]The Impact of Covid-19 on the Aviation Industry: Aircraft Leases, By Camilleri Preziosi, www.mondaq.com/aviation accessed on 24 August, 2020.

[32] The Impact of Covid-29 on aviation finance, op.cit at note 17.

[33] The impact of Covid-19 on the Aviation Industry: Aircraft Leases, op.cit, at note 28.

[34] Art. 1218.

[35] Id.

[36] Art. 1218 para.2.