The impact of Covid-19 builds by the day and businesses are significantly disrupted. Now, the question is, can this pandemic be leveraged as excuses by parties from performing obligations under the force majeuer clause?
Let’s take a look at the essence of a force majeure;
Force majeure clauses are contractual clauses which alter parties’ obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control which prevents Parties from fulfilling those obligations. 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 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.
In English law (which also applies under the Nigeria contract law), the answer depends on the particular circumstances and the drafting of the relevant contractual provisions. We must take note that force majeure is a creature of contract and not of the general common law. It therefore differs from some other legal systems where force majeure is a general legal concept and where courts may declare that a particular event, such as a pandemic like Covid-19, is a force majeure event.
As a result, whether a particular clause relieves a party of contractual liability will depend on the precise wording used in the clause, the allocation of risk between the parties provided for by the contract as a whole, the circumstances in which the parties entered into the contract, and the situation that has arisen. It is for the party seeking to rely on a force majeure clause in order to excuse its non-performance or late performance to satisfy a court or other tribunal that this is the effect of the clause.
The first question is, whether Covid-19 is a force majeure event?
Force majeure clauses will generally adopt one of the following approaches to defining the type of event which may, depending on its impact, relieve a party from contractual liability: events such as war, terrorism, earthquakes, plagues, epidemic or acts of government. Where the term epidemic, or pandemic, has been used, that will clearly cover Covid-19.
An act of government will have occurred where a government body has imposed travel restrictions, quarantines, trade embargoes, or has closed businesses or borders, however the position is ambiguous where government makes recommendations rather than makes orders using legal powers. So, 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 should be 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 will be discussed further, 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.
Where clauses are specific, 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.
However, where the wording surrounding the phrase and other contract terms allow, “force majeure” might potentially be held to cover a range of matters, including legislative or administrative interference such as embargoes and/or epidemics. Given the almost unprecedented nature of the Covid-19 outbreak and/or the actions of governments around the world, it is likely that Covid-19 would constitute a force majeure event under many force majeure clauses. However, just because a force majeure event has occurred does not necessarily mean that the parties will be protected from liability for failing to perform or delay in performance. Unless the under listed is proven.
Does difficulties in performance suffice?
Even if the Covid-19 pandemic or a related consequence such as government action is a type of event covered by the force majeure clause in question, the next question to consider is the impact on the affected party’s ability to perform its contractual obligations.
It is common for force majeure clauses to specify the impact that the event or circumstances in question must have in order for the clause to be triggered. Reference may be made, for example, to the event or circumstances having “delayed” or “prevented” performance. These terms require different levels of impact on performance before a party will be relieved from liability.
The second question is, What should a Party rely on?
A party seeking to rely on a force majeure clause must show that:
- non-performance was due to circumstances beyond their control
- the force majeure event was the cause of the inability to perform or delayed performance; and
- there were no reasonable steps that they could have taken to avoid or mitigate the event or its consequences.
As a result, where a party anticipates falling into difficulty with meeting its obligations, for example due to staff shortages through self-isolation in accordance with government directives, it is crucial to explore whether alternatives sources of labour or materials, are reasonably available, including increased cost.
The third question is, What will be the effect of relying on the clause?
The remedy if a force majeure clause is invoked is for one or more of the parties to be excused from its obligations and/or liability under the contract, without any damages being payable. Force majeure clauses also sometimes provide for extension of time, suspension of time, or termination in the event of continued delay or non-performance. A right of termination could be commercially important, as it may provide leverage to renegotiate contractual terms.
Some clauses also expressly provide that additional costs incurred due to the inability to perform at all or perform timely will be borne by a particular party. If not, then it is likely that costs will be borne by the party that has incurred them, because there is no contractual provision to override this.
Here are some tips for Parties seeking to rely on a force majeure clause:
- Serve any notices as required under the contract, as soon as possible and in accordance with the notice clause.
- Consider carefully whether the event (outbreak of Covid-19 itself, or subsequent government restrictions put in place) constitutes the force majeure event, taking into account the wording of the contract.
- Explore alternative means of performing, reducing delay and minimizing any loss to the other party. Which may require considering alternative methods of delivery, even if it will increase cost. And never attempt to rely on the increased costs to excuse non‑performance or delay, as this may not be sufficient.
- Carefully consider in detail the precise wording of the force majeure clause, the contract as a whole and circumstances that have arisen to help to determine whether performance is excused by a force majeure clause.
- Ensure to keep a documentary record on why performance was impossible and the steps taken to find alternatives and mitigate loss.
Onosen Divine Alegbe
Chairperson, Legal Committee of the Nigerian Insurers Association (NIA)
