INTRODUCTION
As the world struggles to deal with the continued spread of the COVID-19 pandemic, individuals and business entities, aside battling for sustenance, have also been faced with the challenge of keeping to their contractual obligations in the face of the pandemic. This is so as virtually all the countries of the world that have been hit by the pandemic have grounded operations in terms of movement within and out of their respective jurisdictions in order to curb the spread of the virus as the mortality rate keeps increasing by the day. Consequently, parties to contracts are forced to avoid or at least postpone the execution of their various contractual obligations.
FORCE MAJEURE IN CONTRACT ILLUSTRATED
A graphical illustration of the above is made out as follows. Chopperz Place (not real name), entered into a written contract with Madam Spending (also not real name) to supply food and drinks to the latter on the occasion of the latter’s daughter’s wedding billed to hold on the 5th April, 2020 at Beulah Land Beach and Garden, Lekki, Lagos. Madam Spending pays the sum of N7,000,000 on the 5th February, 2020 as deposit out of the total sum of N10,000,000. Chopperz Place, in preparation for the D-day and to avoid any disappointment, goes ahead to make purchases of items worth N4,500,000 that will be used for preparing the edibles and drinks (most of which are perishables) for the wedding. While preparations are in top gear and in the wake of the outbreak of the Corona Virus in Nigeria, the Federal Government of Nigeria, in an attempt to curb the further spread of the virus, orders a complete halt of activities in the whole of Lagos, restricts the movement of people in the entirety of the state and orders the ban of any activity or gathering of people in the state. Only workers in the health sector and essential service providers like food vendors and medical dispensaries are allowed to operate during the lockdown. As a result of the above, Madam Spending immediately contacts the management of Chopperz Place and requests for a complete refund of the sum of N7,000,000 she had deposited on the basis that the event could not hold anymore.
FORCE MAJEURE CLAUSE AND ITS LEGAL IMPLICATIONS
The resolution of such issues as the one painted above will be determined on various factors, one of which is the presence of a Force Majeure clause in the contract between the parties. The concept of Force Majeure represents the legal proposition which posits that obligations in a contract may be vacated or stayed as a result of some supervening circumstance(s) that has made the performance of the obligations or some of the obligations in the contract impossible. The phrase is of French origin which literally connotes ‘superior strength’. A Force Majeure clause, as of standard practice, is usually inserted by the parties to a contract in the contractual agreement that sets out the obligations and rights of the parties.
The clause basically seeks to relieve a party from the obligation to perform the contract if the non-performance is caused by the occurrence of an event that is beyond the control of the parties. The typical Force Majeure provision would exclude liability for non-performance caused by specified events like fire, floods, strikes, riots, famine, explosions, earthquakes, armed conflict or events generally referred to as "acts of God". Depending on their drafting, such clauses may have a variety of consequences, including: excusing the affected party from performing the contract in whole or in part; excusing delay in performance, enabling the parties to suspend or claim an extension of time for performance; or giving that party a right to terminate.
From the scenario cited above, the question arises whether the pandemic of COVID-19 could serve as Force Majeure. The clause could be drafted in such a manner that includes instances of what will be deemed to constitute force majeure under the contract which will be clearly spelt out. Events like earthquakes, floods, riots, war or epidemic, orders from government banning movement, closure of borders, trade embargo and so on could be stated as the instances that will be properly categorized as Force Majeure under the contract and the likes could be listed
Going further and just as Pinsent Masons puts it:
“Where no relevant event is specifically mentioned, it is a question of interpretation of the clause whether the parties intended such an event 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.
Contracts might, for example, refer to events or circumstances "beyond the parties' reasonable control". Determining whether this covers issues arising from Covid-19 is a question of interpretation and is fact-specific.
In unprecedented circumstances like the present, the courts are likely to be generous in their interpretation of this sort of wording when faced with parties who have encountered genuine difficulties in performing. However, as discussed further below, such parties will still need to show that their non-performance, or late performance, was truly outside their control and could not have been prevented or mitigated.
Clauses may give a list of specific criteria, such as fire, flood, war and so on, alongside wider, general wording, such as "or any other causes beyond our control". Although all will depend on interpretation of the particular words used, the general wording in this type of clause will usually be interpreted broadly, rather than being limited to events that are similar to those specifically mentioned. As a result, such a clause may still be triggered even if a health event or other relevant event is not specifically listed.”[1]
ESSENTIAL FEATURES OF A FORCE MAJEURE CLAUSE
The fundamental Points to note regarding a Force Majeure Clause are as follows:
1. Force Majeure does not apply to every contract as it is only where it is provided for in the contract that a party in whose favor it lies may elect to trigger it. In other words, while the concept is one which is known at law, it will only apply where parties have provided for it in a contract as it is a creation of a contractual agreement. In the scenario above, Chopperz Place will only be able to benefit from a Force Majeure clause if same was, in the first place, present under the contract entered between it and Madam Spending.
2. The elements that constitute Force Majeure are not cast in stone as they are determined by parties in a contract. Therefore, the incidents that could trigger the operation of a Force Majeure clause in contract A may be different from those in contract B. Hence, in the scenario as narrated above, Chopperz Place will only be able to benefit from the Force Majeure if it was stated therein that a pandemic, epidemic, outbreak of a disease or government action were grounds upon which Force Majeure could be activated. Where a more generic phrase such as “any other causes beyond our control” was used to describe the supervening event, same will also absolve Chopperz Place off liability.
3. Continuing with our scenario, the inability of Chopperz Place to perform its obligations in the contract must be directly traceable to the COVID-19 pandemic. In other words, for Chopperz Place to be availed the benefit of the Force Majeure clause in the contract, there must not have been another situation that would have led to its inability to perform its obligation to Madam Spending.
4. A party seeking for relief under a Force Majeure clause in a contract must ensure the procedure (if any) towards gaining such relief is followed as scheduled and stipulated under the contract. Per our scenario, the parties may have agreed under the contract that for the benefit of Force Majeure to accrue to a party under the contract, such party must inform the other party of his intention to terminate the obligations thereto within at least 24 hours of the happening of such event that is beyond the control of the parties. Failure to abide by such procedure may serve to deny the defaulting party the benefits of the Force Majeure clause under the contract.
5. The Force Majeure clause may specify the impact that the event must have before the clause could be triggered. Words such as ‘prevent’ and ‘delay’ may either be used the extent to which the impact of the event must have had, failing which the clause cannot be triggered. These words connote varying degrees of impact. Using our scenario, where the force majeure clause stipulates that the occurrence of a pandemic will delay the adverse party from carrying out its obligations, the effect will not be same as where the word that is used in place of ‘delay’ is ‘prevent’. Under the former, the effect is to extend the time when Chopperz Place will carry out its obligations while under the latter, the effect is to entirely avail Chopperz Place from carrying out its obligations under the contract.
6. Force Majeure provisions will usually place an obligation on the party affected by the Force Majeure event (in this case, Chopperz Place) to take immediate steps to mitigate its losses. Mitigation, in this context, involves taking reasonable steps to reduce the loss occasioned by the Force Majeure event. Chopperz Place may therefore be prevented from relying on the Force Majeure clause if it went ahead to make purchases in preparation for the wedding despite having known that the wedding could not go on as a result of the COVID-19 pandemic.
In a situation where Chopperz Place may have gone ahead to make purchases of the food items before the breakout of COVID-19 and the order by the government (just as it was captured in the scenario), it will not be expected to bear the liability of such purchases. Hence, it will refund the money advanced to it by Madam Spending less the expenses it had incurred sequel to the outbreak of COVID-19 and the order of the government.
ABSENCE OF A FORCE MAJEURE CLAUSE IN A CONTRACT
Questions may also arise as to how to handle situations where there is the absence of a Force Majeure clause in a scenario as the one of Chopperz Place and Madam Spending. Under such situation, the doctrine of frustration applicable to contracts will apply.
The doctrine of frustration is a legal doctrine that proposes that the obligations of parties to a contract will be terminated where an unforeseen event outside of the control of the parties has made the obligations in the contract impossible to be performed, or has changed the outcome of the performance of the obligations of the parties under the contract into another radically different result from what the parties had intended when they entered into the contract. An example of such unforeseen situation is where there is a breakout of war in a relatively peaceful country and the government of such country bans the importation of items that Chopperz Place, for example, intends to use in carrying out the construction of a skyscraper for Madam Spending.
In Lagos State, the successful deployment of the principle of frustration of contract will lead to an application of Section 8(2) of the Law Reform (Contracts) Law of Lagos State. The said portion of that law provides to the effect that all sums paid to a party in accordance with a contract shall be recoverable by the person who made the payment. The situation will be slightly different where the party to whom the payment was made has incurred expenses for the performance of the contract before the frustrating event occurred (just as Chopperz Place did incur expenses after being paid by Madam Spending). In such a situation and where the matter has proceeded to court (which is mostly the case in instances where the principle of frustration is applied) the court may, if it considers it just to do so, allow the retention of the portion of the sums that have been expended by the party seeking relief under the doctrine of frustration. Section 8(3) of the Law Reform (Contracts) Law of Lagos State provides for the above.
DISTINCTION BETWEEN THE DOCTRINE OF FRUSTRATION AND FORCE MAJEURE
It is important to note that the doctrine of frustration, though similar in effect to the doctrine of Force Majeure, is more restrictive. This is because it is only in cases where the event that causes the frustration of the contract could not have been foreseen at the time when the contract was entered into by the parties, that the principle can be successfully deployed. Courts will generally not allow a party to use the doctrine of frustration as a tool to escape a bad bargain. The doctrine of frustration will also not relieve a party from performing a contractual obligation simply because the event complained of has made the performance more difficult or expensive. Economic hardship is not a ground for invoking the doctrine of frustration.
In addition to the protection that Force Majeure provisions and the principle of frustration may provide, the Federal Competition and Consumer Protection Act 2019, further provides protection to parties who may find themselves on the wrong end of a consumer contract because of unforeseen events like an outbreak of COVID-19. Section 120 of the Act grants a consumer the right to "cancel any advance booking, reservation or order for any goods and services, subject to a reasonable charge for cancellation of the order or the reservation by the supplier or service provider." A charge will be considered to be unreasonable if it "exceeds a fair amount" having regard to the nature of the goods and services ordered, booked, or reserved, and the length of the notice of cancellation given by the consumer, amongst others.
CONCLUSION
In essence, as unpredictable as things may be, one thing remains sure; the fact that interesting times do lie ahead for Nigerian businesses and the legal industry, particularly in the post COVID-19 era. Based on the foregoing, we advise that individuals and business entities revert to legal advice with the aim of taking proactive measures towards handling such situations when they arise.
[1] Pinsent Masons, 'Covid-19 Force Majeure Clause' Available at: https://www.pinsentmasons.com/out-law/guides/covid-19-force-majeure-clause Accessed 1 April, 2020