THE CRIPPLING IMPACT COVID-19 WILL HAVE ON MOST CONTRACTS

It is now no news that Corona Virus, otherwise known as COVID-19 has been declared a public health emergency of international concern by the World Health Organization (WHO) as several nations across the world are suffering from this pandemic.

Now the issue this article seeks to address is, what effect or impact will COVID-19 have on existing obligations under contracts? The global impact of the outbreak continues to worsen and cause disruption to commercial activities and international trade, thereby increasing the risk of businesses being unable to perform their contractual obligations.

Breach of contract is the failure of a party to a contract to perform duties and obligations imposed on them under that contract. There are several remedies available to the injured party in the case of breach of contract, but that is not our focus in this article. We want to explore one of the mechanisms the law has put in place to protect the party in breach from being punished or forced to execute the contract in such a situation as we are in right now – where failure to perform is caused by a pandemic.

That mechanism is the inclusion of a ‘Force Majeure Clause’ under the contract.

‘Force Majeure’ means greater force. The inclusion of this clause alters parties’ obligations and/or liabilities under a contract when an extra-ordinary event or circumstance beyond their control prevents one or all of them from performing their obligations. The definition of Force Majeure tends to be broad, with many agreements adding wordings about instances such as acts of God or terrorist attacks. The clause is vital because it ensures that failure to perform duties due to unforeseeable circumstances would not be considered a breach. It’s needless to state that COVID-19 was unforeseeable. Adding a pandemic to the list of Force Majeure events can ensure clarity as to whether a viral outbreak would trigger a Force Majeure clause in a contract.

Whether or not a Force Majeure clause would apply to a contract depends on how the events that would trigger it or bring it into operation is worded. It’s either the clause provides that the triggering event would ‘prevent’ the performance of the contract, in which case, the party relying on it would need to prove that performance is physically and legally impossible; or that the triggering event ‘delays’ performance, in which case, the party invoking the clause must prove that he has taken all reasonable steps to mitigate the event and its effects in the performance of the contract.

Many businesses have been put on hold because of this pandemic, many who had their goods scheduled for importation into Nigeria or exportation out of Nigeria are stuck because of the closure of borders. This will surely cause a strain in some businesses, most especially those who sell goods that have expiry dates or perishables. In fact, some businesses may not survive this pandemic.

Having a solid legal structure however, can save your business from law suits that may emanate from breach of contracts you entered into without COVID-19 in view.

According to a study carried out on the operations of startups and MSMEs in Nigeria from 2014-2019, up to 70% of startups and 40% of MSMEs enter into contracts without documenting it and up to 20% of startups and 30% of MSMEs enter into contracts without engaging the services of a lawyer. This means that only 10% of startups and 30% of MSMEs in Nigeria engage the services of a lawyer in drafting and executing contracts.

While COVID-19 outbreak could not have been envisaged by your lawyer, a professionally and carefully drafted contract by a lawyer who is vast in corporate commercial law would have protected you from its effects on contractual obligations as expounded in this article. This is because in drafting a contract, your lawyer plays the devil’s advocate, thinking wide and wild to protect your interest.

Advertisement