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To What Extent Is Covid-19 Epidemic A Force Majeure Event Under Nigerian Law?

posted 5 years ago

Introduction

Upon the outbreak of Covid-19 in Wuhan,
China, the World Health Organization (WHO) declared the virus a world health
emergency in January 2020. The virus later spread to over 150 countries. The
virus made many people to be extremely ill and led to the death of thousands of
people. Most countries have closed their borders to prevent arrivals from
countries with infected persons, ordered businesses to close and instructed
their population to self-isolate themselves in order to break the spread of the
virus.

Since 11th March 2020, when WHO announced
that the virus is a pandemic, the economy of most countries has been shut down.
The pandemic has negative impact on international commerce and trade
activities. It has suspended tourism activities, supplies and other global
value chains, commerce, financial and stock as well as businesses in many
countries. In Nigeria, major cities have been completely shut down and there is
fear of an imminent economic recession.

What is Force Majuere?

The concept of Force Majuere is derived
from the French legal system. It is an express provision that halts contracts
when events occur which make it impossible to continue with the performance of
the contract provided such events was unforeseeable and unavoidable.

In Common Law, there is no presumption of
force majeure and parties who wish to provide for such exceptions must
expressly include them in their contracts. In recent times, force majeure
clauses have largely become standard in commercial contracts in England and
Nigeria.

Nigerian Courts Decision on Force Majuere
Events

In Nigeria, the principle is more commonly
referred to as “frustration”, and it is more akin to the French than English
approach in that it is a principle which can apply irrespective of its express
inclusion in a contract.

The Nigerian courts have defined Force
Majeure
as the premature determination of a contract between parties, lawfully
entered into and which is 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 striking the
root of the contract and entirely beyond what was contemplated by the parties
when they entered into the contract.    

The courts have recognized the following
situations or events as constituting frustration; 

a.            Subsequent
legal changes;

b.            Outbreak
of war;

c.             Destruction
of subject matter of contract;

d.            Government
requisition of the subject matter of the contract; and

e.            Cancellation
of expected event.

Upon the occurrence of a Force Majuere
event, either or both parties may cancel the contract or be excused from either
part or complete performance of the contract. Such events may include; war,
strike, riot, crime, or an event described by the legal term “act of God”
(hurricane, flood, earthquake, volcanic eruption, etc.).                 

Covid-19 as a Force Majuere event in
Nigeria

The effects of the Covid-19 outbreak has
included government intervention to limit local and international travel,
lockdowns in which public and private employees are ordered not to go to work,
financial and stock market failures (drastic, historic drops in the prices of
financial instruments such as shares, options, futures, bonds, etc.), among
myriad other consequences.  

For Force Majeure clauses, the
determination will be based on the basic expression of the contract. In
contracts where the Force Majeure clauses specify “disease”, “outbreak of
illness”, “epidemic” or some other similar term, the current outbreak would
likely qualify by virtue of its scale and disruptive effects.

However, where no specific term relating to
disease is used, it might still be a valid ground if there is an omnibus term
such as “act of God” included. In either case, the fundamental requirements of
invoking Force Majeure will still have to be satisfied by proving the
following;

(i)            That
the outbreak of Covid-19 has occurred out of the control of the parties;

(ii)           That
it has made it impossible to continue the performance of the contract as usual;
and

(iii)          That
the party invoking the clause has taken all reasonable steps to avoid or
mitigate the consequences in which the Covid-19 outbreak will have on the
contract. For example in a contract for sale of goods, could the goods be
obtained and delivered through another supplier in the buyer’s location, thus
avoiding the transit restrictions? All options must be considered in light of
the terms (express and implied) of the contracts.

Conclusion

It is clear that the doctrine of Force
Majuere
(and frustration) enjoy judicial recognition in Nigeria. The current
global circumstances resulting from the outbreak of the novel Covid-19 are
likely to occasion breaches of contract across various industries, making the
doctrine a viable tool for businesses to consider in mitigating their business
liabilities. Business must continue and at the end of the epidemic, the
businesses which will be in stronger position will be those that took swift
legal action to secure their interests.        

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