The Gist with DRC
By Kereti Usoroh Ibanga
A contract is a legally binding promise made between two parties. Each party to a contract promises to perform a certain duty or pay a certain amount for a specified item or service. The purpose of a contract being legally binding is so each party will have legal recourse in the event of a breach.
A breach of contract occurs when the promise of the contract is not honored, because one party has failed to fulfil their agreed upon obligations, according to the terms of the contract. Breaching can occur when one party fails to deliver in the appropriate time frame, does not meet the terms of the agreement, or fails to perform at all.
The coronavirus causing COVID-19 disease which originated in Wuhan, China, is spreading around the world with such speed that the World Health Organization (WHO) has declared the outbreak a pandemic. In its wake, travel restrictions have been imposed by a number of countries, including Nigeria.
Flights, hotel bookings, conferences, sports events and much more have been cancelled. Schools have been shut down whilst some state governments have banned any religious gatherings with more than fifty worshippers. Global stock markets are crashing while central banks are lowering interest rates and taking measures reminiscent of the 2008 financial crisis.
The pandemic has also taken its toll on businesses and their ability to perform their contractual obligations. A lot of businesses are scampering to find out whether or not they will be held liable for non-performance caused by the pandemic.
In this context, I consider how force majeure provisions in commercial contracts and the related common law doctrine of frustration may be engaged in the context of the COVID-19 outbreak.
A force majeure event refers to the occurrence of an event which is outside the reasonable control of a party and which prevents that party from performing its obligations under a contract. English common law has no general concept of force majeure (save for the limited doctrine of contractual frustration, which is addressed below).
The doctrine of frustration is basically a court order that means the contract is immediately brought to an end because of some disaster that is no one’s fault, and which couldn’t reasonably have been foreseen when the contract was entered into. It is the only excuse for a failure to perform contractual duties.
A party’s ability to claim relief for a force majeure event therefore depends upon the terms of the contract, and the force majeure provision in particular. Force majeure provisions are express terms and will not ordinarily be implied into contracts governed by English law.
Events Capable of Constituting Force Majeure:
1. The event must be beyond the reasonable control of the affected party;
2. The affected party’s ability to perform its obligations under the contract must have been prevented, impeded or hindered by the event; and
3. The affected party must have taken all reasonable steps to seek to avoid or mitigate the event or its consequences.
The ability to make and enforce contracts and resolve disputes is fundamental if markets are to function properly.
Good enforcement procedures enhance predictability in commercial relationships and reduce uncertainty by assuring investors that their contractual rights will be upheld promptly by local courts. When procedures for enforcing commercial transactions are bureaucratic and cumbersome or when contractual disputes cannot be resolved in a timely and cost effective manner, economies rely on less efficient commercial practices.
Traders depend more heavily on personal and family contacts; banks reduce the amount of lending because they cannot be assured of the ability to collect on debts or obtain control of property pledged as collateral to secure loans; and transactions tend to be conducted on a cash-only basis. This limits the funding available for business expansion and slows down trade, investment, economic growth and development.
Therefore, The use of an Alternative Dispute Resolution (Negotiation) method to resolve some of the disputes arising due to the pandemic can never be overemphasized.