As the COVID – 19 pandemic continues to disrupt commercial activities across the
globe, there is a rising concern about the possible breach of contracts that may
inadvertently result from such disruptions. The pandemic is a novel supervening event
that is likely to unsettle the age-long principle of sanctity of contract as expressed in
the maxim “pacta sunt servanda” meaning parties must keep their contractual
promises.
With the imposition of lockdown measures, travel restrictions and social distancing
policies across the globe, it has become increasingly imperative for businesses to be
flexible and creative in order to remain profitable or even afloat. Businesses are having
to rely more heavily on technology while also reviewing contractual terms and
obligations and developing robust business continuity plans, which can be quickly
deployed during eventualities like the COVID– 19 pandemic.
At present, an avalanche of disputes relating to the enforcement of contractual rights
and obligations appears inevitable in the days ahead, which will test and possibly
redefine the limits of the legal defences of “Frustration” and “Force Majeure”.
The legal effects of the two defences are similar in that they respectively operate to
alter the parties’ contractual obligations in the event of an appropriate extraordinary
event or circumstance. In applicable instances, they excuse an affected party from
performing the contract (in whole or in part), they provide legitimate excuses for “delay
in performance” and enable extension of time etc.
However, while “Frustration” is a general common law principle, “Force Majeure” is a
contractual term which, as a legal concept, cannot be imputed into a contract. As it is
now standard for contracts to contain “Force Majeure” provisions, the pertinent
questions are whether it can be interpreted to apply and cover instances of COVID–
19 firstly based on the specific wording of the relevant term and or whether where the
relevant term includes “Act of God”, a more liberal interpretation stance would be taken
by the Courts to cover a pandemic that is man-made having remote causation and
unforeseen impacts. The question also exists whether in the event of future
pandemics, their disruptive impacts can be classified as “unforeseen” following on
from the lessons from COVID– 19.
With the lessons from the pandemic, it is expected that going forward, business
contracting as indeed operations would be both more flexible and appropriately robust
to absorb the shocks that may result from future pandemics or natural disasters. The
way forward for businesses may include, but not limited, to the following measures:
1. Insurance policies in respect of unforeseen man-made eventualities like COVID
-19.
2. Deployment of robust business continuity strategies and flexible operational
models with the capacity to adapt quickly to possible changes or needs.
3. Expansion of ‘Force Majeure’ provisions to accommodate novel eventualities
like COVID -19.
4. Promoting and encouraging e-commerce friendly legislation as well as
legislation specifically aimed at the impacts or fallouts of COVID-19.
For businesses requiring advice and or support in relation to present challenges
connected with COVID – 19 pandemic and those seeking to restructure their business
against the impact of possible future pandemics, please contact us at
b.j.bulama@twentyfour-law.com and, or info@twentyfour-law.com
