DOES CORONA-VIRUS QUALIFY AS A MATERIAL ADVERSE EFFECT OR AN ACT OF GOD THAT CAN TRIGGER FORBEARANCE OF CONTRACTS?
A COMBINED POWERFUL
ARTICLE BY; Olajide Akinola Abiodun Esq ([email protected]), Paul Ogonnaya Samuel
Esq ([email protected]), and Oliver
Gift Chukkol ([email protected]).
Abstract;
General Background Of the Coronavirus;
Coronavirus is a grouping of viral diseases which are generally analogous to influenza, but even more harmful and deadly. Coronavirus variations have been known in years past. However, on November 17, 2019, a new military weapon variation of coronavirus was noticed in Wuhan city, in central China’s Hubei province, although reporting from government records makes it unclear if it was recognized so early as a new disease. Josephine Ma, " Coronavirus: China’s first confirmed Covid-19 case traced back to November 17," South China Morning Post, March 13, 2020, accessible at https://www.scmp.com/news/china/society/article/3074991/coronavirus-chinas-first-confirmed covid-19-case-traced-back.
This new virus has been designated as COVID-19 or SARS-CoV-2. The first case confirmed to be COVID-19 infection is admitted to be on December 8, 2019. However, doctors in Wuhan and throughout China "were also ordered not to disclose any information about the new disease to the public." COVID-19 is an extremely dangerous disease, because it has an extremely aggressive nature, was designed to mutate from person to person, spreads very quickly and easily, no vaccine exists yet on account of it being a new disease, the means of transmission are not fully known with certainty, and treatments are only just being worked out, and the disease appears to be about ten times as deadly as the flu. COVID-19 was designed by China to be a very “effective” and catastrophic biological warfare weapon to kill mass populations. Studies from scientists at Princeton University undergoing peer review show that COVID-19 can survive in the air for up to three hours and be transmitted in the air and can survive on inanimate surfaces for up to three days. See: John Bowden, "Tests Indicate Coronavirus Can Survive in the Air," The Hill, March 11, 2020, accessible at: https://thehill.com/policy/healthcare/487110-tests-indicate-coronavirus-can-survive-in-the-air Filed 03/17/20 Page 11 of 24. This makes COVID-19 a very unusual and dangerous virus, seemingly hand crafted to spread rapidly through multiple pathways. Meanwhile, there are many indications besides the nature of the disease demonstrating that the virus was engineered in the Chinese military's laboratory or laboratories.
The outbreak of this Coronavirus disease has brought terrible suffering all over the world, along with vast economic costs. The series of sudden stops in economic activities is gradually passing negatively through Nigeria’s economy and has metamorphosed into a full-blown shock Impeding demand and supply and hampering the performance of contractual obligations.
This recent global ‘fire outbreak’ is having a destructive effect on every sector of the world economy. This conflagration which started in Wuhan, China in December 2019 has spread like wildfire to about 211 countries of the world, with over 1.3 million casualties recorded within 4 months of its ignition. This blaze has enveloped the world in a global panic; however, unflinching efforts are being made by fire-fighters to put off this flame and mitigate the losses by ensuring the continuous availability of hydrants. Sadly, the heat from this flame has already caused severe burns on commercial transactions, thereby necessitating the need for emergency treatment. Health workers are doing their best to manage the situation, nevertheless, the simmering smoke from the flame and its attendant damages on commercial transactions may continue to generate controversy even after this fire is eventually put off. This paper aims to discuss the incidence of the coronavirus outbreak, the severity of it burns on commercial transactions, and whether or not it qualifies as a factor that can trigger forbearance of contracts.
Keywords: Coronavirus, Contract, Material Adverse Effect, Frustration, Force Majeure.
Introduction
The outbreak of coronavirus (otherwise referred to as COVID-19) in Wuhan, China in November/December 2019 which started as a local crisis has now metamorphosed into a global threat. On 30th January 2020, the World Health Organization declared the outbreak as a Public Health Emergency of Global Concern. Apart from the human cost of the virus, the outbreak presents potential disruptions to the commercial landscape with a profound economic impact. In a bid to contain the spread of the virus, countries around the globe have adopted stringent measures, with costly implications on contractual relations, such as the imposition of travel bans, compulsory quarantine, total lockdown, export and import restriction, etc. Consequently, contractual obligations have become more difficult to perform, supply and delivery of goods are delayed, and it is expected that there will be a spike in business strains in the aftermath of the outbreak.
As this pandemic continues to proliferate, ensuring a volatile-free commercial arena at its aftermath becomes paramount. Steps are already being taken by business experts and stakeholders in the corporate industry in preparation for the adverse outcomes that are expected to follow the aftermath of the unprecedented coronavirus outbreak. Many experts have recommended that the legal doctrine of frustration and force majeure clause may be handy in ironing out the strains that the post-COVID-19 outbreak would present to the business world. However, the extent to which these defenses will avail an affected party remains a question of fact to be determined by the court.
Incidence of the Coronavirus Outbreak
Since the wake of the COVID-19 pandemic, there have been heated debates and speculations regarding the origin of the virus. Two main arguments are currently making waves regarding its origin. One school of thought argues that COVID-19 is a product of science, humanly engineered as a biological warfare weapon by the Chinese government to reduce the world population and disrupt the world economy. This argument can be gleaned from the preamble of the class action filed at the United States District Court in Texas against the People’s Republic of China & Ors on 17th March 2020.[1]
The second school of thought maintains that the virus has a natural cause, with its origin traceable to bats. It further posits that the virus falls within the family of the severe acute respiratory coronavirus (SARC-CoV) and the Middle East respiratory syndrome coronavirus (MERS-CoV) which were discovered in 2002 and 2012 respectively.
The former argument has been criticized for being overtly cosmetic and shambolic due to a lack of credible evidence in support of the claim. The latter appears to be a more credible explanation of the origin of COVID-19.
The outbreak which started as a domestic issue in China has now spread to about 211 countries with 1,349,584 confirmed cases and 74,806 confirmed deaths as at 9:00 am on 7th April 2020. Nigeria experienced its index case on 27th February 2020. However, the number of confirmed cases in Nigeria has now grown to about 238, with 5 deaths and 35 recovered cases as of 6th April 2020. This virus knows no border and has continued to spread like wildfire, with its implications affecting every aspect of human life.
Research has shown that there is currently no clinically approved vaccine or therapy for COVID-19, however, there appears to be hope of a vaccine being discovered for the virus in the nearest future. Clinical trial for potential treatment in ongoing, and about 286, 655 recoveries have been reported globally as of 7th April 2020.
As the world continues to grapple with the outbreak, the World Health Organization has advised that preventive measures (such as social distancing, maintain proper respiratory hygiene, and frequent washing of hands) should be taken by all and sundry to contain the spread of the virus.
Implications of the outbreak of COVID-19 on Contractual Relations
As noted earlier, the rapid outbreak of the coronavirus and the resulting emergency measures being put in place by governments to contain its spread has resulted in gross disruption of business activities with alarming economic impacts. Countries all over the world have adopted stringent government policies such as total lockdown, compulsory quarantine, travel ban, and export and import restriction, in a bid to address this global crisis. These consequential measures pose a wide range of implications on businesses and commercial transactions, chief among which is the resultant involuntary breach of contract.
The Chinese President, in addressing this issue noted that “It is unavoidable that the novel coronavirus epidemic will have a considerable impact on the economy and society”. This position was also affirmed by the Japanese Finance Minister thus:
“The spread of the new coronavirus is a public health crisis that could pose a serious risk to the macro economy through the halt in production activities, interruptions of people's movement and cut-off of supply chains”.
The Nigerian commercial landscape is not left out in this monumental disruption. On 29th March 2020, the Nigerian government declared a total lockdown of 3 major cities in the country, namely Lagos, Ogun, and Abuja, for an initial period of 14 days as part of the measure to contain the spread of the virus, with compulsory quarantine, cessation of all movement, and travel ban. All businesses and commercial hubs within these locations are to be fully closed during this period, except for hospitals and industries dealing in essential items such as food, grocery, and medicine. Before this declaration, some state governments had earlier placed a ban on social and religious gathering, and the Lagos State government specifically directed all civil servants from grades 1-12 in non-essential roles to work from home for an initial period of 2 weeks. All tertiary institutions in the country, as well as private and public schools in the various states, have been shut down. There has also been partial closure of both local and international airspace and seaports in Nigeria. Business activities in almost every sector of the economy have been brought to a sudden halt.
Nigerian commercial terrain is currently experiencing a high level of disruption in the supply chain, delayed deliveries, low demand for products, loss of employment, closure of workplace/industries, shortage of labour, the abrupt cancellation of planned events, cancellation of flights, postponement of appointments, etc. Complying with contractual time limits is now more difficult, and in most cases, impossible. Many contractual agreements where time is of the essence have now become impossible to perform. Industries involved in procurement and supply chain, manufacturing, travel and tourism, and transportation seem to be the most affected by this outbreak and its implications. Countries like Nigeria which rely heavily on products and supplies from a major adversely affected region like China and the U.S will also suffer disastrous economic fallout in the aftermath of the outbreak.
Legal Implications of the COVID-19 outbreak
The unexpected outbreak of the COVID-19 pandemic and its resultant effects on businesses and commercial transactions presents grave legal consequences on contractual relations. Generally, contracts are binding on the parties, and contractual obligations are meant to be performed. Unfortunately, the advent of COVID-19 has resulted in delayed performance, and in most cases, non-performance of contractual obligations. Consequently, it is expected that the commercial terrain will witness extensive legal tussle in the aftermath of COVID-19. This discovery has triggered businessmen, corporate organizations, scholars and corporate lawyers all over the globe to explore possible defenses that are likely to avail litigants given the anticipated legal battles that are expected to herald the post-Covid-19 commercial landscape. A broad spectrum of commercial industries, including the oil and gas sector, fintech sector, manufacturing sector, building and construction sector, health care sector, procurement and supply chain logistic sector, maritime sector, petrochemical sector, insurance and banking sector, travel and tourism sector, and transportation and automobile sector, etc. are affected by the effects of this pandemic, and are considering ways to mitigate the pending risks and attendant liabilities for breach of contractual obligations that will follow the outbreak. Among the possible defenses available to the parties, two stand out for consideration in light of the focus of this paper, namely: the doctrine of frustration and the force majeure clause.
a. The Doctrine of Frustration
This is a common law doctrine which was laid down in the epoch-making decision in Taylor v. Caldwell, where the court held that a contract is discharged if, after its formation, a change in circumstances makes it legally, physically or commercially impossible to fulfill. The court in Davies Contractors Ltd v. Fareham UDC defined the doctrine thus:
‘Frustration occurs whenever the law recognizes that without the default of either party, a contractual obligation has become incapable of being performed because the circumstances in which the performance is called for would render it a thing radically different from what was undertaken under the contract’.
It is the premature determination of an agreement between parties lawfully entered into and 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 as both striking at the root of the agreement, and as entirely beyond what was contemplated by the parties when they entered into the agreement. – Mazim Eng Ltd v. Tower Aluminium.
Various incidents have been held as causing a radical change in a contract, therefore leading to its frustration. Such incidents include:
1. A subsequent change in law, legal position or government order which affects the foundation of a contract.
2. An outbreak of a pandemic (such as the COVID-19 pandemic) or its consequential implications which renders the performance of a contract legally, physically or commercially impossible.
3. Destruction of the subject-matter of the contract.
4. Cancellation of an expected event as a result of the outbreak or its implications.
Whether or not the outbreak of the COVID-19 pandemic will qualify as an event capable of frustrating a contract will depend on the nature of the contract involved and the extent to which the performance of the contract is prevented, delayed or hindered by the outbreak. The party wishing to rely on this defense must prove that the outbreak or its consequential implications radically or fundamentally changed the very nature of the contract. The affected party must prove the following;
1. That the frustrating event was not self-induced, but rather that the event was an occurrence beyond the control or contemplation of the parties.
2. That the intervening occurrence is so fundamental that it destroyed or radically changed the very basis of the agreement.
3. That as a result of the occurrence of the intervening event, the performance of the contract has become impossible, illegal or fundamentally different from what was contemplated by the parties at the time of entering into the contract.
4. That the frustrating event occurred after the contract had been formed, but before its breach by either of the parties.
It must be borne in mind that it is the duty of the court to determine whether or not the COVID-19 outbreak amounts to a frustrating event, however, the burden of proving this claim lies solely on the party seeking to rely on this defense. In Denny, Mott & Dickson v. James B. Frasser & Co. Ltd, the court held that it does not lie on the parties to say that there has been frustration, rather it is for the court to ascertain whether an event constitutes a frustrating event or not. Thus, this power is to be exercised judicially and judiciously by the court in the interest of justice, when handling the chain of commercial disputes that are anticipated to beleaguer the court in the aftermath of the COVID-19 pandemic due to the consequential breach of contracts.
Legal Effect of Frustration on Contracts affected by the COVID-19 outbreak and its resultant implications
Upon the court pronouncing that the outbreak of COVID-19 and its resultant effects amounts to a frustrating event, the contract to which it applies automatically determines, and further performance by the parties is excused. That is, all legal rights already accrued or money already paid, which has become payable before the advent of COVID-19 remains intact, while obligations falling due for performance after the outbreak are discharged. Thus, the affected party will be entitled to recover all the money prepaid towards the performance of the contract, and would not be liable to pay any sum yet to be paid, provided that the other party shall only be entitled to recover any expenses already incurred by him towards the performance of the contract before the occurrence of the outbreak.
However, if at the time of the frustrating event, no sum has been paid to the party or no sum was payable to him, he will not be entitled to the recovery of any sum, and it is immaterial that he had incurred expenses towards the execution of the contract before the occurrence of the frustrating event, provided that if the party in question has done something towards the performance of the contract which conferred a valuable benefit (other than payment of money) to the other party, he shall be entitled to receive a sum of money not exceeding the value of the benefit so conferred by him on the other party.
The above represents the position of law as was laid down in the case of Fibrosa Spolka Akcyjna v. Fairbairn, Lawson, Combe, Barbour Ltd, and further expounded under section 4 of the Law Reform (Contracts) Laws of Lagos State, 1994.
b. The Force Majeure Clause:
The force majeure clause otherwise known as the ‘superior force clause’ or ‘escape clause’ is a clause usually inserted in commercial agreements by the parties, which seeks to protect parties from liability in the event of the occurrence of an incident already specified by the parties as a force majeure event. This clause applies to unforeseen events (that is, circumstances beyond the control of the parties), natural or artificial, that was neither contemplated by the parties at the time of entering into the contractual relationship, nor caused by their actions or in-actions, but which prevents one or both parties from performing all or any of their obligations under the contract as evinced in the letters and spirit of the contractual agreement.
The nature of an event that will qualify as a force majeure is usually specified by the parties. The parties also stipulate steps that can be taken by the parties upon the occurrence of any of the specified events. Usually, the affected party is required to notify the other party of the occurrence of the alleged force majeure event, and take steps to mitigate the risks. Also, the parties stipulate the effect that the occurrence of the force majeure event would have on the contractual relationship of the parties.
Events that can qualify as force majeure may include an act of God (such as flood, hurricane, tsunami, earthquake, tornado, plague); an act of man of disruptive and unforeseen nature (such as war, industrial action); or governmental actions (such as a change in law, government order (total lockdown, compulsory quarantine, export and import restriction, travel ban), requisition, expropriation).
Whether or not this defense will avail an affected party depends greatly on the precise wordings of the clause. Some may specifically mention the events (i.e. virus, highly infectious diseases, travel ban, etc.), while some generalize the events (i.e. pandemic, epidemic, an act of God, the act of man, etc.) without specifying the nature of such event.
In any case, the success of the affected party will depend greatly on the party’s creative and persuasive contractual drafting, interpretative and legal advocacy skills. Thus, an affected party who is desirous of relying on this defense to escape liability for non-performance in the wake of the post-COVID-19 outbreak must be able to establish that:
1. The sudden outbreak of the COVID-19 pandemic and its consequential implications was beyond his control;
2. The outbreak or its consequential implications was specifically provided in the clause. This may be a bit difficult to prove since COVID-19 is a relatively novel phenomenon; it is unlikely that any force majeure clauses would explicitly refer to the event of a Coronavirus outbreak. However, it will suffice to show that the outbreak or its implications fall within the purview of events contemplated by the parties in the clause (i.e. pandemic, epidemic) or that the consequential lockdown, compulsory quarantine, export and import restriction, and travel ban were contemplated within the purview of government action as may have been specified by the parties in the clause.
3. The outbreak or its consequential implications prevented, delayed, or hindered the performance of his obligation under the contract.
4. All reasonable steps were taken to avoid or mitigate the consequences of the outbreak on the contractual relationship of the parties.
Legal Effect of a Force Majeure Clause on Contracts affected by the COVID-19 outbreak and its resultant implications
Force majeure clause, if validly invoked, can be a veritable defense in an action for breach of contract at the aftermath of COVID-19 outbreak, and has the effect of either completely absolving the parties of the consequences of non-performance or suspend the performance of all or any obligation under the contract for a specified duration, depending on the agreement of the parties.
However, it must be noted that this defense is not automatic and cannot be implied. It is for the parties to spell out in clear terms, circumstances or events which will qualify as force majeure. In the absence of such agreement, the occurrence of a supervening event that prevents the performance of an obligation under a contract will not absorb the defaulting party of liability. It follows that a party can only rely on force majeure as an excuse for non-performance if an only if it was included as a term of the contract at the time of contracting. Thus, any event that was not specified in the clause will not operate as force majeure.
It is also pertinent to note that it is the duty of the court to determine whether or not an event qualifies as force majeure. The clause is usually interpreted strictly, with great consideration given to the precise wordings of the clause. So, it is imperative that the parties exercise a high level of dexterity when drafting the force majeure clause. The court has held that increased cost of fulfilling the obligation as a result of a supervening event does not qualify as force majeure.
It is pertinent to note that other reliefs may be available to the parties. For instance, they may choose to review and amend the terms of their contract; they may also consider alternative dispute mechanisms in resolving their dispute; limitation of liability clause; estoppel, etc.
Poser: Do the sudden outbreak of COVID-19 and the consequential effect qualify as a material adverse effect that can trigger forbearance of contracts?
There is no hard and fast rule for determining whether or not the sudden outbreak of coronavirus qualifies as a material adverse effect that can trigger the forbearance of a contract. Rather, each case is to be treated on the basis of its own merit, having regard to the peculiar circumstances of each case, the nature of the contract, the precise wordings of the contractual agreement, and the conduct of the parties, vis-a-vis the impact of the COVID-19 outbreak and the resultant measures on the contract.
Illustration 1 - Impossibility of Performance
Generally, the mere outbreak of a disease, as in the case of the COVID-19, does not automatically render the performance of a contract impossible so as to lead to the forbearance of contract, however, if the outbreak or its consequential implications radically affects the performance of the contract, then the contract may become frustrated or a force majeure event may be deemed to have occurred. Thus, if the outbreak of COVID-19 or the consequential government order renders the parties physically unable to perform the contract, then the court may most likely hold that forbearance has occurred. For instance, if before the coronavirus outbreak parties had entered into a contract for the supply of 50 bags of cement from Lagos State to Ogun State to be delivered on the 6th day of April 2020, and the party who is meant to effect the delivery was prevented from doing so because of the government order shutting down all businesses and banning all forms of movement of non-essential goods in or out of Lagos State, then the doctrine of frustration may mostly likely excuse such party from liability for non-performance. The force majeure clause may also be invoked to suspend or terminate the performance of the contractual obligation if such an event falls within the purview of the stipulated force majeure event.
On the other hand, if the contract was for the supply of 50 bags of rice to be delivered at the same location within the subsistence of the government order, the doctrine of frustration or the force majeure clause will not avail a defaulting party because the supply of essential goods such as food (rice) was exempted from the operation of the government order. Thus, the defaulting party will be held liable for breach of contract, and it is immaterial that the coronavirus pandemic caused an increase in the cost of supplying the product.
Illustration 2 - Complying with time-based contracts
Where time is of the essence in a contract and the agreed date for the performance of the contract falls within a period during which the government order imposing a lockdown of all businesses and cessation of all movement as a result of the COVID-19 outbreak is still subsisting, making it impossible for the party to act within the agreed period, then the doctrine of frustration or the force majeure clause may apply to excuse the non-performance or suspend the performance, as the case may be.
However, if the duration for the performance of the contract is extensive of the period of the lockdown, then the doctrine of frustration or the force majeure clause will not apply. That is, if the contract is not time-sensitive, and can still be performed after the duration of the government order/lockdown, then the outbreak of COVID-19 and the resultant measure will not constitute a frustrating or force majeure event since it still leaves the contract substantially intact.
Thus, if the government order is not expected to last for a prolonged duration (as in the case of the 14 lockdown declared by the Nigerian government on 29th March 2020), and time is not of the essence, then the contract is not likely to be discharged or suspended. - Tamplin SS Co. Ltd v. Anglo-Mexican Petroleum Products Co. Ltd.
However, where the period of the government order/lockdown is indefinite or extensively prolonged when compared to the duration of the contract, the contract may stand discharged or suspended, as the case may be, and non-performance may be excused. (Bankline Ltd v. Authur Capel & Co.
Example 3 - Cancellation of Expected Events
The unprecedented outbreak of the COVID-19 pandemic and its attendant implications has brought about a high rate of cancellation of events, appointments, and contracts. If, for instance, a party had entered into a contract with an event manager in respect of a wedding that was scheduled to hold on a specified date or had booked a flight which was supposed to take off on a particular date, but the wedding or flight was subsequently canceled as a result of the outbreak of the COVID-19 or the consequential government action, then the doctrine of frustration or the force majeure clause (as the case may be), may excuse the parties for non-performance.
However, if the wedding or flight was canceled as a result of the default of one of the parties during the subsistence of the outbreak, but before the government order imposing a travel ban, then the doctrine of frustration or the force majeure clause may not apply.
Stemming from the above illustrations, it is obvious that there is no strict rule prescribing what effect the outbreak of COVID-19 or its consequential outcome will have on contractual relations, rather it is for the court to determine to so do after a holistic consideration of each case and its surrounding circumstances in the light of the outbreak.
IN ANOTHER VIEW
COVID-19 PANDEMIC is currently affecting all areas of (economic) life across the globe. Nigerian Government has adopted, and is continuing to adopt, urgent and unprecedented measures including restriction of movement, lock down orders, shutting down businesses etc to contain the escalation of the Coronavirus Disease.
The unprecedented health crisis and the measures taken by government will have significant consequences on the contractual obligations of many economic players, leading to multiple consequences, namely: delays, interruptions, re-negotiations and even contractual cancellations. Therefore, the essential question that arises in the present circumstances is whether, as a result of the pandemic caused by Covid-19, the economic actors affected by the virus or its consequences could invoke some contract law principles in order to withdraw from their obligations or to suspend its effects, either temporarily or definitively.
At the heart of these considerations are the notions of force majeure (or Act of God), Material Adverse Effect (MAE) and Frustration which we will deal with, in this article.
COVID-19 VS FORCE MAJEURE/ACT OF GOD
Force Majeure,[2] otherwise known as an act of God, is an unforeseeable circumstances that prevents someone from fulfilling a contract. It is clause in a contract that excuses a party from not performing its contractual obligations that becomes impossible or impracticable, due to an event or effect that the parties could not have anticipated or controlled[3]
In the case of G.S.M. Nig. Plc v. R. T. I. Ltd (2017) LPELR-41433(CA), it was held that:
“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 OR EVENTS 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.”
In the case of M.W.T. (Nig.) Ltd. v. P.T.F. (2007) 15 NWLR (Pt. 1058) 451, the Defendant (Petroleum Trust Fund otherwise called P. T. F) awarded to the plaintiff a contract of rehabilitation of old boreholes and construction of new ones in Kwara State but the P. T. F. could not construct the boreholes because it was later scrapped by government. The issue before the court therefore was whether the scrapping of the Defendant constituted force majeure to relieve the defendant of the liability of constructing the boreholes.
The trial court held that it constituted force majeure but Court of Appeal set aside the decision. According to the Court of Appeal, the scrapping of P.T.F. would not affect contractual obligations entered into prior to the scrapping exercise. It relied on section 6(1) of the Interpretation Act, Cap. 192, Laws of the Federation of Nigeria which explicitly states that the repeal of an enactment shall not affect the rights and liability accrued under the enactment. Below were the words of the Court of Appeal:
“I agree also that the contract was repudiated deliberately by the Federal Government so to speak by making the P.T.F. impotent. The stoppage cannot in any way be described as a result of force majeure they only tried to escape its obligations under the contract by claiming force majeure.”
It should be noted that the trial court did not make reference to any FM Clause in the agreement between the parties before reaching the above conclusion. Why the court therefore continued using the word force majeure is a mystery. It is therefore submitted this is a case of frustration as opposed to force majeure.
In Westac (Nig.) Ltd. v. Sokoto State Govt. (2001) 4 NWLR (Pt.703) 304, the appellant entered into an agreement with the respondents to supply and install the furniture on the new Government House, Sokoto on conditions and terms spelt out in the agreement. The contract price of N152,000,000 was agreed upon and payable in two equal installments, the first instalment of N76,000,000.00 was paid.
To the charging and dismay of the appellant, it received a letter notifying it of respondents' decision to revoke the contract on the ground of "general economic recession being faced in the country which resulted in the short fall of projected revenue to finance the project".
The Appellant sued Sokoto Government to recover the outstanding second installment but after the conclusion of hearing, the trial court in its judgment found that the contract could not be performed due to force majeure because the respondents could no longer finance the contract as a result of the economic recession being experienced by the respondents. It therefore held the action of the respondents valid and legal under terms of the contract agreement. It consequently dismissed the appellant's claim.
The learned trial Judge said:
"To my mind what is meant by force majeure is a cause which is outside the control of the party and cannot be avoided by exercise of due care. Economic recession is something beyond the control of the defendants. Since the defendants cannot be able to finance the contract for reason beyond their control. The defendants acted rightly in revoking the contract. Therefore the action of the defendants is valid and legal under clause 15 of the contract agreement.
For this reason the plaintiffs case lack merit and is accordingly dismissed. The plaintiff can sue for damages"
The Court of Appeal did not tamper with the above finding because it was not appealed against. But from the above findings, it appears there was a force majeure clause in the agreement of the parties. Whatever is the case, one cannot say whether the court was right or wrong since one cannot lay hands on the force majeure clause of the contract.
The case that would be of assistance in resolving whether COVID-19 constitutes force majeure is the case of G.S.M. Nig. Plc v. R. T. I. Ltd (supra). The reason is because in that case there was a force majeure clause in the written agreement of the parties and was a subject of interpretation. It would be appropriate to produce the force majeure clause of the contract which provides as follows:
“Force Majeure:
“28. The term force majeure means circumstances beyond the control of the party concerned and resulting in or causing a failure or delay by or hindrance to or interference with such party in the fulfillment wholly or in part of any of its obligations under this agreement which circumstances cannot be prevented or overcome by the exercise of due diligence by the party concerned and without prejudice to the generality of the foregoing shall be deemed to include (but not limited to) the following:
i. compliance with any law, regulation, policies, order or demand or any other act of any government or its agencies;
ii. strikes, boycotts, lockouts and other industrial disturbances;
iii. Acts of God, acts of the public enemy, wars, blockades, military action, insurrections, riots, epidemics, landslides, lightening, earthquakes, fires, explosions, storms, floods, civil disturbances and restraints of all governments which makes the operation of textile or spinning industry impossible.
“29. On the occurrence of any of the events as listed in clause 28 (i-iii) the parties shall be relieved from liability under this agreement, except in relation to obligation to make outstanding payments on the due dates and in delivering to the Buyer the quantity of yarn already manufactured and any available excess which has not been committed to a third party before the occurrence of the force majeure.
“30. A party seeking relief under this force majeure shall, within a period of forty-eight hours after the happening of the event causing the force majeure, notify the other of such event and shall with diligence furnish such relevant information as is available concerning the event and give an estimate of the period of time required to remedy the failure.”
What happened in the case was that the respondent and appellant entered into an agreement for the appellant to supply the respondent cotton yarn not less than 250 metric tones monthly while the respondent will take a minimum of 220 metric tons from the appellant monthly for a 3 - year period. Pursuant to a dispute that arose between the parties, the parties chose arbitrators as provided in the agreement. The appellant claimed various sums for the loss of profit due to failure of respondent to lift cotton yarn and interest. The arbitral panel made an award in favour of the appellant. The respondent was not satisfied and filed a motion at the Federal High Court, Lagos State, praying for an order setting the award aside and same was granted on grounds that the arbitral panel failed to consider the above force majeure clause.
The argument of the Respondent was that the contract was discharged due to force majeure as captured in the above clause based on the:
1. Failure of government to curb illegal importation of textile fabrics banned by the federal government.
2. Permanent loss of market with no future anticipated turn around due to huge supply of low priced illegally imported fabrics.
3. Frequent and unpredictable interruptions in gas supply which is our only financially viable source of energy.
4. Mounting cash losses coupled with a large level of unsold stocks and high customer credit outstanding which have resulted in our liquidity crunch.
The court accepted the argument of the Plaintiff but on Appeal, the decision was set aside. Court of Appeal held that there was no event that occurred which could be termed as force majeure. It held that the reasons given by the Respondent are the usual vicissitudes of the trade in Nigeria. One cannot be doing business in Nigeria and not put into considerations the endemic issue i.e. epileptic electricity, fluctuation of price of diesel and gas. Moreover diesel and gas may be disrupted by the many occasions of fuel scarcity in the country.
It added that our land borders are very porous and anybody in this business would have known that this is the situation. “Can this therefore be said to be force majeure when these situations are with us always?” the court of appeal asked. It added that the Respondent did not also comply with the term of informing the Claimant of the event within 48 hours. On the whole, the court held that the reasons of the Respondent were the usual happenings in Nigeria. They do not disclose force majeure to terminate the contract of Sale and Purchase Agreement.
The court concluded that Force majeure is generally intended to include occurrences beyond the reasonable control of a party, and therefore would not cover:
1. 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.
2. 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.
In the light of the foregoing, it is submitted that force majeure cannot be invoked in a vacuum. There must be a clause in a written agreement making provision for what should constitute force majeure and what should be a remedy. In the absence of such agreement, force majeure cannot be invoked in contractual disputes that will arise as a result of the current COVID-19
Even when there is a force majeure clause, it can be invoked only if the clause expressly covers the "outbreak of diseases", "epidemics" or "pandemics". Where no relevant event is specifically mentioned, it would be a question of interpretation of the clause whether the parties intended Covid-19 to be covered. This involves considering whether the list of events included was intended to be exhaustive or non-exhaustive. Unless specific words are used to suggest that a list is non-exhaustive, it can be difficult to argue that parties who set out a list of specific events but did not include a particular event, such as an epidemic, nonetheless intended that event to be covered.
The inability to perform must also be traced to the COVID-19. The reason is that if the default of performance would have occurred even without the force majeure event, then the clause cannot avail the defendant. Provisions in the contract in respect of procedures to be followed in invoking the force majeure must be followed. Failure to follow the procedure would make the force majeure unavailable.[4] There must also be evidence of steps taken to mitigate or avoid the loss that the force majeure caused. Failure to take steps is also fatal.
Depending on their drafting, force majeure clauses may have a variety of consequences, including: excusing the affected party from performing the contract in whole or in part; excusing that party from delay in performance, entitling them to suspend or claim an extension of time for performance; or giving that party a right to terminate.
WHAT CAN MAKE COVID-19 AN ACT OF GOD?
The FM clause may mention act of God to be among the events that would constitute force majeure.[5] What then is an act of God in the first place? Can its meaning cover COVID-19?
This writer could not lay hands on any Nigerian case where the meaning of the word “Act of God” was considered. Consequently, one would fall back at English cases and those of other equivalent jurisdictions
From those cases that considered the meaning, an 'act of God' must:
1. be exclusively the consequence of natural causes;
2. be of an extraordinary nature; and
3. such that it would not be anticipated or provided against by the party seeking to rely on it.
Exclusively of natural causes
The case of Nugent v Smith [1876] 1 CPD 423 is illustrative on this point. It was held that the act must involve "elementary forces of nature unconnected with the agency of man or other cause" for it to be considered an act of God. Other cases interpreted the term to include storms, flooding, lightning, or heavy snowfall.[6]
If this is to be considered strictly, then Covid-19 would be out of it because it is connected with agency of man. Hence, the advice for self-isolation. Once a person who is positive touches another person, that other person will be infected. It means man is an agent or cause contrary to the requirement above.
Furthermore, is not Covid-19 that restricts movement or locks down States and cities in Nigeria, rather, is government that places such restrictions in response to the spread of the virus. That totally takes it out of nature to the realm of human action. In other words, the failure of one to discharge his obligation under the contract may not be because of Covid-19, rather, is because of the action of humans (government).
On the contrary, there are examples of the English courts finding that an illness can be an 'act of God'.[7] In Boast v Firth [1868-69] L.R. 4 C.P. 1, permanent illness was said to be an 'act of God'. His Lordship went further to clarify that only illnesses that are not the fault of the person in question can be considered an 'act of God':
"not every illness, though it be permanent … can be said to be the act of God. It may have arisen from the wilful carelessness or imprudence or misconduct of the apprentice: and then it would be no excuse…"
In Isabella Hall v George Wright (1859) 120 E.R. 695, it was also recognized that an illness could be an 'act of God'. The judge in this case, in considering the hypothetical scenario of a contract for an author to write a book or a painter to paint a picture within a reasonable time, determined that:
"if the author became insane or the painter paralytic, and so incapable of performing the contract by the act of God, he would not be liable personally in damages."
In Ryan v Youngs [1938] 1 All ER 522 a man, who was employed by the defendant to drive a lorry, died whilst driving the lorry which ran on and injured the plaintiff. The judge ruled that:
"this case is what has often been referred to as an act of God. An apparently healthy, apparently competent man, in charge of a competent machine, is suddenly struck down, and that is a matter which nobody can reasonably anticipate."
Of such an extraordinary nature
Another requirement is that an 'act of God' must be "extraordinary" or "overwhelming".[8] In Nugent v Smith (supra), the court compared the difference between the wind which enables a ship to navigate the ocean, and rainfall which causes a river to burst its banks. Both are natural events but the latter is more violent, sudden and overwhelming and therefore an 'act of God'.
Also, where a natural event is unprecedented, it is likely to be sufficient to satisfy this limb of the definition. Example, an extraordinarily high tide, unprecedented rainfall, an extraordinary flood, and extraordinary snowfall have all been found to be 'acts of God'. [9]
It submitted therefore that COVID-19 is likely to satisfy this limb of the definition as it represents an "unprecedented" pandemic, with its effects being similarly unprecedented.
Cannot be anticipated or provided against
Finally, in order for an act to constitute an 'act of God', the act must also not be such that can be "prevented by any amount of foresight and pains and care reasonably to be expected" by the party relying on it.[10]
Judicial precedents suggest that a party cannot be expected to provide against an unprecedented event. For example, in Nicholas v Mars land (supra), it was found that, although the defendant could have prevented loss through protective measures, he could not reasonably be required to prepare for an unprecedented flood. Furthermore, even where an event is not unprecedented but is still an extraordinary event, it does not mean that it can reasonably be expected to recur unless it has happened several times.[11]
However, in the Scottish case of Greenock Corpn v Caledonian Rly Co, a more stringent approach was adopted, with the court determining that the relevant test was whether the circumstances in question were foreseeable as a possibility. Subsequent cases have failed to clarify whether the 'soft' criterion of reasonableness or the 'hard' criterion of possibility is to be preferred.
The Australian courts have followed the reasonableness approach. In Commissioner of Railways (WA) v Stewart (1936) 56 CLR 520, the High Court held that a severe rainstorm was not an “act of God” as it was not “such that it exceeded in amount that for which a reasonable man could have been expected to provide.”
The timing of when a contract was entered into is of course relevant to issues of foreseeability; it could readily be argued that parties entering contracts after COVID-19 became known about could, and should, have foreseen the implications for performance of their contractual obligations.[12]
By way of conclusion, success of force majeure depends largely on compliance with the foregoing discussion. If it fails, hope is not lost. There are other principles that a party can fall back to. This leads us to the next principle.
MATERIAL ADVERSE EFFECT/EVENT/CHANGE
If a force majeure claim cannot be sustained, many contracts also contain a clause allowing termination or adjustment of obligations in the event of a “material adverse change” (MAC) or a “material adverse effect” (MAE) on the value of performance.
material adverse change (MAC), material adverse event (MAE), or material adverse effect (also MAE) are all principles referring to a change in circumstances that significantly reduces the value of a company.
Generally, such clauses appear in acquisition, sale of goods, financing and other commercial agreements, and are used to create parameters whereby a buyer may terminate a transaction because of an event that negatively impacts the nature or value of the target product, company or business.
Contracts often do not specify events that may give rise to a MAC or MAE, but utilize general descriptions of the types of impacts required for relief. For instance, in financial agreements, accounting for some variations in language used, a MAC is often defined as "a material adverse change in the business, assets, properties, liabilities (actual or contingent), operations, condition (financial or otherwise), or prospects, of the Borrower, individually, or the Borrower and its Subsidiaries taken as a whole”.
MAC and MAE provisions commonly exclude specifically the effects of market conditions, Acts of God, and similar events. The threshold required in order to be material is rarely specified, but Courts have consistently considered that any factor that would have induced a reasonable party not to enter the contract is material.
Invoking a MAC clause is difficult. Materiality will need to be demonstrated clearly and objectively. Given that MAC clauses tend to lack language that identify a particular event or loss as a MAC, determination of a claim for MAC relief often requires a detailed factual inquiry with an uncertain outcome. This risk is one reason why MAC clauses are more commonly invoked to renegotiate deal terms rather than as a basis for termination.
There are paucity of decided cases on MAE. And from the few ones on ground, it is obvious that the courts are generally reluctant to enforce MAC provisions but, in these unprecedented times, could Covid-19 trigger the ability of a party to lawfully rely on MAC provisions?
In re IBP, Inc. Shareholders Litigation, 789 A2d 14 (Del Ch 2001), the United States Chancery Court performed in-depth analysis of MAE clause. In that case IBP and Tyson Foods had entered into a merger agreement containing a seemingly buyer-friendly clause permitting Tyson to terminate the transaction before closing in the event of a MAE. The parties defined “MAE” in a circular fashion, which is not uncommon, to include “any event, occurrence or development of a state of circumstances or facts which has had or reasonably could be expected to have a Material Adverse Effect . . . on the condition (financial or otherwise), business, assets, liabilities or results of operations of [IBP] and [its] Subsidiaries taken as a whole”.
Tyson terminated the transaction on the eve of closing because of an alleged sharp drop in IBP’s financial performance in the last quarter of 2000 and first quarter of 2001, combined with the discovery of accounting impropriety at one of IBP’s subsidiaries. The Delaware Chancery Court disagreed that these circumstances constituted a MAE, holding that:
“Practical reasons lead me to conclude that a New York court would incline toward the view that a buyer ought to have to make a strong showing to invoke a Material Adverse Effect exception to its obligation to close. Merger contracts are heavily negotiated and cover a large number of specific risks explicitly. As a result, even where a Material Adverse Effect condition is as broadly written as the one in the Merger Agreement, that provision is best read as a backstop protecting the acquirer from the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durationally - significant manner. A short-term hiccup in earnings should not suffice; rather the Material Adverse Effect should be material when viewed from the longer-term perspective of a reasonable acquirer”.
After analyzing all of the facts and circumstances in great detail, the court concluded that Tyson had not met its burden to prove by convincing expert evidence that the long-term earnings of the business would decline materially compared with its historical performance.
See also Grupo Hotelero Urvcasco v Carey Value Added SL and Another [2013] EWHC (Comm) 1039. The case in point involved a lender’s refusal to advance funds in accordance with its obligations under a facility agreement. The loan was going to be used to fund a property development following the 2007-2008 financial crisis. The lender claimed it was entitled to do so because the Spanish property bubble had burst and there had been a MAC to the borrower’s financial position.
The court in this instance held that the lender was not entitled to conclude this and that, in refusing to advance the money, it had breached the terms of the facility agreement.
In coming to this decision, the court noted that a change is only material and adverse if it affects the lender’s ability to repay the loan under the facility agreement and that, in any event, the change must be sufficiently significant. It follows, therefore, that a temporary adverse change would neither be material nor significant.
Accordingly, while external economic and market changes may, to an extent, evidence the economic difficulties that an entity could suffer at a particular time, these external changes would not themselves constitute a MAC for the borrower who could be affected differently in these circumstances to that which was expected.
Due to the aforementioned difficulty in proving a MAC has occurred, rather than being a legally contentious point, MAC provisions have instead more commonly provided a basis for which contract terms can be renegotiated between lenders and borrowers.
At this point in time, invoking a MAC clause due to COVID-19 issues may be difficult in most circumstances. The long-term effects of COVID-19 on financial and operational aspects are unknown. Further, there is always a variety of factors affecting market performance, such that proving a MAC or MAE attributable to COVID-19 alone, as opposed to general market or business conditions, may be difficult.
FRUSTRATION
The import or meaning of frustration of contract has been stated and restated many times, by our courts. It occurs where it is established to the satisfaction of the court that due to a subsequent change in circumstances which was clearly not in the contemplation of the parties the contract has become impossible to perform.[13]
The case of G. N. NWAOLISAH VS. PASCHAL NWABUFOH (2011) 14, NWLR (PART 1268) 600 at 630 H to 631 A - F ADEKEYE, JSC said:
"Frustration occurs wherever the law recognizes that without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performances is called for would render it radically different from what was undertaken by the contract."
In NOSPECTO OIL & GAS LTD v. KENNEY & ORS (2014) LPELR-23628(CA), it was held as follows:
"Frustration in contract comes about when an event occurs without the fault of any of the parties and which hinders or prevents the performance of the duty under the contract and which fundamentally changes the circumstance and striking at the root of the agreement.
In UBA Plc vs. Omniproducts (Nig) Ltd (2006) 15 NWLR (Pt. 1003) 660, frustration was defined as:
“the premature determination of an agreement between parties, lawfully entered into and in the course of operation, at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstance, so fundamental as to be regarded by law both as striking at the root of the agreement, and as entirely beyond what was contemplated by the parties when they entered into the agreement.”[14]
Therefore, for the defense of frustration to succeed, one of more of certain recognized events must be established.
In Okereke Vs Aba North LGA (2014) LPELR-CA/PH/179/2004, it was held that:
“The events which have been listed by the court to constitute frustration are:
(1) Subsequent legal changes or statutory impossibility;
(2) Outbreak of war;
(3) Destruction of the subject matter of the contract or literal impossibility;
(4) Government acquisition of the subject matter of the contract;
(5) Cancellation by an unexpected event like where other party to a contract for personal service, dies or where either party is permanently incapacitated by ill-health, imprisonment etc from rendering the service he has undertaken.”[15]
Once any of the above listed events is not proved, the defence of frustration will fail. In PHN & Anor V Atlas Projects Ltd (2017) LPELR-43622 (CA), it was held that inability to raise money for the performance of the contract was not sufficient to constitute frustration.
In WEMA BANK PLC v. OLOKO (2014) LPELR-22574(CCA, the Respondent’s overdraft was dishonored and he wrote a letter to the Uyo Branch of the appellant demanding to know their reason for dishonouring his draft. The Appellant claimed to the effect that the Federal Government of Nigeria had given a directive restricting the movement of persons for the conduct of the 2006 National Census exercise.
The defense of frustration failed because there was a contradiction in the case of the Appellant. That since it received the bank draft, the claim that it did not open its offices during the period of the census is false. If their office were not opened how then did they receive the letter?
Judgment was entered in favour of the Respondent and all the reliefs sought were granted.
In ADDAX PETROLEUM DEVELOPMENT (NIG) LTD v. LOYCY INVESTMENT CO. LTD & ANOR (2017) LPELR-42522(CA), the Appellant awarded a contract to the 1st Respondent for the surface dressing of a road for a particular community in Imo State. In the course of the work, the Appellant asked the 1st Respondent to suspend the construction because of the protest by the community protested and demanded an asphalt Road instead. The 1st Respondent suspended the work but its workers and equipment remained on the site. Meanwhile, the Appellant awarded the construction of the Asphalt Road to a different company. Miffed by the turn of events, the 1st Respondent sued the Appellant for breach of contract. The Appellant on the other hand raised the defense of frustration on the ground that the protest of the community amounted to frustration leading to the discharge of the contract. The court discountenance the defense and appeal on it failed. The court held that it was a breach of contract and the Appellant was asked to pay the 1st Respondent on quantum meruit basis.
In MALIK v. KADURA FURNITURE & CARPETS CO. LTD (2016) LPELR-41308(CA), the Appellant paid the Respondent the total sum of N7,170,060.35k on the contract for the supply of doors and door frames of various types, wardrobes and kitchen cabinets. However, the Respondent could not complete the work because he claimed he was handicapped in making the delivery by the intermittent strike action embarked upon by its factory workers during the period and because of unavailability of some of the materials needed.
The trial court held that it constituted frustration but same was set aside by the Court of Appeal
In ARAKA V MONIER CONSTRUCTION COMPANY (NIGERIA) LTD. (1978) LPELR-531(SC) it was held that Frustration is applicable to tenancy
In the light of the above analysis, one can argue that COVID-19 constitutes a valid ground for raising frustration as a defense. Provided, that impossibility of performance would be established.
Another important consideration as to whether COVID-19 constitutes frustration or not would be whether the contract can be performed even with or without the virus. Example, if it is a contract that doesn’t require physical contact and the situation is safe, all things being equal, there is no way out for the person, he must fulfill his obligation under the contract.
It should be noted that the mere fact that Covid-19 makes performance of a contract difficult does not ipso facto make the situation a frustration. See Okereke Vs Aba North LGA (2014) where the position was restated as follows:
"A contract is not frustrated merely because its execution becomes more difficult or more expensive than either party originally anticipated and has to be carried out in a manner not envisaged at the time of its negotiation. Davis Contractors Ltd. V. Fareham N.D.C (1956) AC 695; Tsakineglon & Co. v. Noblee Thorh G.M.B.H. (1962) AC 93.
It was also on this basis that the defense of frustration failed in the case of ADDAX PETROLEUM DEVELOPMENT (NIG) LTD v. LOYCY INVESTMENT CO. LTD & ANOR (supra)
In frustration, there is no requirement of clause at all. Whether a circumstance is for frustration or not is for the court to decide. See MALIK v. KADURA FURNITURE & CARPETS CO. LTD (2016) LPELR-41308(CA), where it was confirmed as follows:
“It is the duty of the Court to state whether and when frustration has occurred; it is the Court that determines the existence of frustration from the facts pleaded and evidence led by the parties - Attorney General, Cross River State Vs Attorney General of the Federation (2012) LPELR-SC.250/2009.
By the same decision,[16] the defense of frustration of contract, like other recognized defenses, need not be specifically pleaded by using the word "frustration" and it is sufficient that the party raising it pleads facts alleging impossibility of performance of a contract and alleges the occurrence of one or more of the above mentioned events that the Courts have listed as constituting frustration.[17]
FINDINGS
· The difference between frustration and force majeure is the fact that the latter is invoked only when it is provided for in a contract.
· When there is a force majeure clause in a contract, frustration would be inapplicable. Frustration applies only if there is no force majeure clause in a contract
· The parties decide on the circumstances that can be regarded as force majeure. As for frustration, it is not the parties that decide on what it constitutes. The court decides based on the available evidence.
· The effect of frustration is that it terminates a contract. However, in force majeure cases, the parties decide the effect (which may include postponement of performance, discharge of the contract etc.).
· Material Adverse Effect gives the buyer the privilege of withdrawing from a contract before conclusion if he discovers that the contract will not favour him in the long run
CONCLUSION
From the discourse undertaken, it can be seen that one cannot tell whether COVID-19 is a force majeure or frustration or a Material Adverse Event. It may depend on the circumstance of each case. There is also no gainsaying that the current coronavirus pandemic is having unprecedented implications on global and local trade and commerce. It is anticipated that the aftermath of the COVID-19 pandemic will be heralded by a plethora of commercial disputes as a result of consequential breaches of contracts stemming from the outbreak and its resultant effects on commercial transactions. Scholars, business experts, and lawyers have expended much ink in their quest to proffer possible escape routes to this pending legal battle. The common law doctrine of frustration and force majeure clause is believed to be veritable shields given the looming legal tussle. Although these defenses promise to offer succor to intending litigants, it has however been revealed that these defenses are not automatic. In determining whether either of these defenses will apply to a given case, the affected party will be required to prove, through creative and persuasive contractual drafting, interpretation and legal advocacy that his non-performance was as a result of the outbreak of the COVID-19 or its effect on the contract. Nevertheless, the court in deciding whether the defense will avail a party or not must treat each case on the basis of its own merit, having regard to the peculiar circumstances surrounding each case, the nature of the contract in relation to the pandemic, the wordings of the contractual agreement, and the conduct of the parties, vis-a-vis the impact of the COVID-19 outbreak and the resultant measures on the contract.
The authors further advises that the Covid-19 pandemic has and will bring novel and complex legal issues in labour and employment law. It is therefore very important that corporate organizations seek every legal advice on every proposed course of action.
Thank you.
[1] Class Action Complaint concerning massive damage caused by the Defendants as a result of COVID-19 release from an illegal and internationally outlawed bio weapon facility in the city of Wuhan of the People’s Republic of China.
[2] Otherwise simply abbreviated as FM
[4] See the case of G.S.M. Nig. Plc v. R. T. I. Ltd (supra) where the attempt to invoke force majeure failed for not complying with the term of informing the Claimant of the event within 48 hours.
[5] See for example Clause 28 (III) of the agreement mentioned in the case of G.S.M. Nig. Plc v. R. T. I. Ltd (supra).
[6] See Cushing v Peter Walker & Son (Warrington & Burton) Ltd - [1941] 2 All ER 693: Forward v Pittard [1785] 99 E.R. 953 and Briddon v Great Northern Rly Co (1858) 28 LJ Ex 51
[7] though the cases are all contracts for personal services, rather than in a modern commercial context
[8] Environment Agency (Formerly National Rivers Authority) Respondent v Empress Car Co. (Abertillery) Ltd. Appellant [1998] Env. L.R. 396
[9] Nichols v. Marsland [1876] 2 Ex.D.1; Thomas v Birmingham Canal Co (1879) 49 LJQB 851 and Briddon v Great Northern Rly Co [1858) 28 LJ Ex 51.
[11] Nitro-Phosphate and Odam's Chemical Manure Company v London and St. Katharine Docks Company (1878) 9 Ch. D. 503
[12] Matthew Saunders, Benjamin Gourgey, COVID-19; Does it fall within your force majeure clause? Available at https://www.ashurst.com/en/news-and-insights/legal-updates/covid-19-act-of-god/ accessed on the 31st of March, 2020
[13] DIAMOND BANK LTD. v. UGOCHUKWU (2007) LPELR-8093(CA)
[14] See also Araka vs. Monier Const Co, Nig.(1978) 6 - 7 SC 7." Per WAMBAI, J.C.A. (P. 31, paras. B-F)
[15] See also MALIK v. KADURA FURNITURE & CARPETS CO. LTD (2016) LPELR-41308(CA), Davies Contractors Ltd. V. Fareham NDC (1956) AC 696; Akanmu v. Olugbode (2001) 13 WRN 132; NBCI v. Standard (Nig.) Eng. Co. Ltd. (2002) 8 NWLR (Pt. 768); G. 104. Obayuwana v. the Governor of Bendel State (1982) SC pg. 167, (1983) 4 nclr 96; Taylor v. Caldwel (1963) 3 B & Y S 826; J.P. Dawodu v. B. Anderson & Co. Ltd. (1925) 6 NRL pg. 106; Adu v. Makanjuola (1944) 10 WACA Pg. 168.
[17] Pulseline Services Ltd Vs Equitorial Trust Bank Plc (2010) LPELR-CA/A/213/2008.
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