Introduction

The last few months have taken a toll on global realities at large. Businesses have shut down, economies get crippledday-by-day, streets and homes are on lockdown and the trajectory of commercial realities viz-a-viz contractual obligations continue to take a drastic change. The above are some of the impacts of COVID-19, a novel kind of Corona Virus ravaging the face of the earth and causing the death of thousands of people across the globe.

On March 11, 2020 the World Health Organization declared the novel COVID-19 as a pandemic. This was following its reported 118,000 cases spreading across 110 countries. Whilst there were early questions raised as to the justification of WHO’s decision to declare COVID-19 a global pandemic, the recent development across the globe has no doubt laid the questions to rest. As at May 17, 2020 the number of confirmed COVID-19 cases worldwidewas over 4.64million, whilst the death cases in connection with COVID-19 was reported to be over 312,000.

Impact of COVID-19 Pandemic onthe global economy and commercial activities

The above has begun to bear adverse effects on commercial performance and the global economy at large.According to WHO(per Dr. Tedros Adhanom Ghebreyesus), “this is not just a health crisis, it is a crisis that will touch every sector”. The impact of the COVID-19 has been rather devastating to all spheres of human activity, this is including economic and commercial activities around the globe.

In recent developments, we have seen businesses closed-down or folded-up, commercial activities collapsed, strict lockdown with diverse measures employed in different countries, fall in consumption, fall in investment, increase in expenditures, a decline in exports as well as inability to meet varieties of commercial obligations. According to the World Bank projections, many developing countries are likely to be hit by recession in the aftermath of this global pandemic. In the same vein, the International Monetary Fund has also suggested a rather grim global economic forecastas a direct effect of the pandemic.

In light of the foregoing, the inability to fulfill obligations under commercial agreements/arrangements have now become unavoidable. This has continued to occasion frustration to businesses, particularly the performance of contractual obligations – which is a core of commercial activities.

Doctrine of Frustration

The underlining intent of all contractual relationships – whether formal or informal, written or unwritten – is that parties complete their respective duties under the said contract, with milestones achieved and parties released of any past or future liabilities. Where parties are unable to perform any or part of their respective duties under a contract, the contract will be to such extent, frustrated.According to A-Z Guide to Boilerplates and Commercial Clause –Where a contract becomes unfeasible to perform or performance is practicable only in a manner significantly different from how parties intended as a result of certain factors external to the contract or directly emanating from parties, such contract shall be subjected to Doctrine of Frustration (under common law).

However, it is not desirable to have a contract terminated or have the same determined under the doctrine of frustration in such circumstances. As such, parties to a contract as well as solicitors (legal advisors) have over the time opted for having a Force Majeure clause included in contracts. This helps parties to prescribe how to deal with or manage certain circumstances which may hamper the performance of a contract.

Force Majeure clause, inter alia, allows parties to prescribe ways or manners in which to handle circumstances that may prevent party(ies) from performing their respective obligations under the contract in the prescribed manner.Where a Force Majeure clause is properly drafted, it also serves as an anchor to save the contract in the event ofunusual circumstances.

Special circumstances that may hinder the performance of a contract under force majeure includes; government interference, the introduction of new laws or policies, natural disasters or pandemics (that actively cripples commercial activities), where the obligation under a contract is or has become unlawful, etc. However, under force majeure clause, parties may choose to: to exempt each other from performance of the contract or liability for breach of contract where the failure to perform is due to factors beyond that party’s control; agree that the contract continues in force during this period; and/or that the contract is ‘re-activated’ when the ‘force majeure’ event come to an end.

Advice on Force Majeure Clause draft

It is the desire of a draftsman that none of its (contract) drafts or any part of it is subjected to litigation or such dispute between parties. As such, whilst it is apt to insert a clause as important as force majeure in a contract, it is also important that such clause (and the whole contract) is well-drafted to cater absolutely for parties’ desires.

Some draftsmen often elect to set-out lists of events that may constitute force majeure events. However, this approach is now deemed an old style of drafting, also, having a long list of events may subject the clause to the principle of expressiouniusestexclusioalterius– that is, the expression of one thing excludes another. As such, the clause may not adequately provide for some unforeseen events.

Draftsmen have also been advised to just include the clause “circumstances beyond the control of the parties” in defining force majeure events. Nevertheless, this style of drafting is faced with the query, whether the clause is expansive enough to cover ‘any’ excuse of parties in the event of breach. If the later in the case, the draft will then be subjected to litigation in determining the nature of ‘excuse’ the clause can cover. Overall, it is advisable to set-out key events or occurrences that will be regarded as force major, and then a general reference to events ‘beyond the parties’ control. And of course, with a proviso that limits the effect of the general reference by excluding instances where the party claiming force majeure may have instigated the event.[see the case of Mamidoil-Jetoil Greek Petroleum Co SA v Okta Crude Oil Refinery AD (No 2) (2003) EWCA Civ 1031, (2003) 2 All ER (Comm) 640)] [see AdvisedSample Draft below]. Force majeure clause must seek to address the following issues – Effect, Consequences, Procedural Approach, Curing the force majeure event, Length of Time.

Advised Sample Draft

1.1. No Party to this Agreement shall be responsible for the inability to perform any or part of the obligations set out in this agreement where such inability is caused by Force Majeure events or occurrence which is beyond the control of the affected Party (Force Majeure).

1.2. In furtherance to the above, the Force Majeure events include (but not limited to) any form of natural disaster (flood, earthquakes, tempest, drought) war, fire, hostilities, civil disturbance, lockout, industrial action, actions or policy review by any government or state authorities, or any other circumstance beyond the reasonable control of the parties. PROVIDED THAT, this clause shall not absolve a party claiming force majeure if the party has instigated or initiated the process resulting in the Force Majeure event.

1.3. The affected party shall, immediately or within 15 (fifteen) days of realising the existence of the Force Majeure event, notify the other Party in writing of the said Force Majeure event. This notification must describe the nature of the Force Majeure event, how the same has hindered its ability to perform its obligation under the contract, any damage control measures undertaken by that Party, and if possible, the estimated effect of the inability of that Party to discharge its obligations under this agreement.

1.4. In furtherance to Clause 1.3 above, if in the event of a Force Majeure, the affected Party fails to notify the other Party within the time stated above or a delay is occasioned in notifying the other Party, the Party responsible for the delay shall be liable to pay damages the quantum of which shall be determined by Parties or through a dispute resolution mechanism agreed by Parties.

1.5. Where the Force Majeure event has prevented parties from performing their respective obligations under this agreement for fourteen (14) days, parties shall agree in writing to suspend the obligations under this agreement for a specified period. PROVIDED THAT, parties may employ the service of or cause the supply of products, being the subject matter of this agreement, from a different party, during the period of suspension.

1.6. Where the period of suspension has elapsed and the Force Majeure event remains in place, parties may terminate this agreement following the provision in this agreement.

1.7. Provided that, parties shall first attempt to review modalities of performance of obligations under this agreement towards achieving performance of contract notwithstanding the persisting Force Majeure event, before considering termination of the contract.

NOTE – The above draft is a sample draft on a general consideration, as such,there is need to draft this clause to suit the context of the given contract under draft.

Test: COVID-19 pandemicas Force Majeure Event

The ongoing lockdown across the globe is a manifest impact of the global pandemic caused by the novel COVID-19. Significantly, this has affected virtually all sectors of the economy, as well as, contractual relationships. It has affected the performance of contracts in diverse ways; it has caused a majoralteration in schedules and milestones of commercial arrangements, as well as affecting numbers and statistics of such arrangements.Notwithstanding the above, it is not out of place to test whether the above suffices for an event of force majeure.

Generally, the question of whether an event or occurrence suffices as a Force Majeure event in a contract can only be resolved by considering the content of the force majeure clause in the contract. However, there are instances where an occurrence is not envisaged or adequately provided for by a force majeure clause and yet it has continued to hinder the performance of obligations under the contract. In such instances, parties may choose to have a review of the contract or terminate. Such is the COVID-19 pandemic and resultant effect on commercial activities.

Does this COVID-19 pandemic and the incidental effect suffice as force majeure event? Taking this draft into consideration – “act of God, war, strike, lockout, industrial action, fire, flood, drought, tempest or other events beyond the reasonable control of either party”, we attempt to construe this event under any of the keywords. However, can we say the COVID-19 pandemic is an act of God or construe same as beyond reasonable control of either party?

An Act of God – this means, an instance of uncontrollable natural forces in operation. Nevertheless, there have been ongoing political insinuations around the world suggesting that the outbreak is ‘man-made’. The above has placed the probability of whether the pandemic is man-made or an act of God at a balance. This is therefore subject to further determinations.

Beyond reasonable control of parties –we resolve that this phrase may absolve the COVID-19 pandemic and its resultant effects. However, parties should endeavour to check whether there is an opening that may allow further performance or the possibility of reviewing the modalities of performance and save the contract.

Conclusion and Recommendations

In light of the foregoing, we hereby set-out the following recommendations:

Per the realities of the COVID-19 pandemic, it is now expedient for parties to a contract to come back to the negotiation table and review theprojections and milestones in their contract viz-a-viz what projections are no longer realistic and how parties can reach a compromise for eachother?It is not unusual to ask for a meeting to review terms of a contract, you only need to find the right approach by seeking legal advice.

Also, there is now the need for employers to look into reviewing their employees’ terms of employment, as there is the need to cater for such events as this which may cripple commercial activities. This will save the employer from being exposed to the risk of possible litigation by a former employee. Also, it may allow the employer to either introduce a pay-cut or review work and compensation modalities without much hassle.

Loans – The Central Bank of Nigeria (CBN)issued a circular to Deposit Money Banks (DMBs) and the General Public. The circular is dated March 16, 2020 with reference number FPR/DIR/GEN/CIR/07/049. This circular provided for a downward review of interest rates and extension of the moratorium on all CBN intervention facilities. Furthermore, the CBN, by the said circular, issued a regulatory forbearance to all Deposit Money Banks ‘to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the outbreak of COVID-19’. The above implies that banks are encouraged to entertain any request or approach by customers who have existing loan facilities with the bank towards a review of the tenor and terms of their loans. Per the above, businesses that are affected by the COVID-19 pandemic are advised to approach their respective banks and seek to renegotiate or review the terms of their existing loan facilities, rather than struggling to meet the obligations thereunder.

Author

Olatubosun Betiku is a quintessential lawyer with wide experience in corporate commercial practice. He is currently a Senior Associate at Fountain Edge LP – a corporate law firm based in Nigeria. He has advised major establishments within and beyond the shores of the country on landmark transactions.

Contact:[email protected]– 08062671429