It is no longer news that the world of commerce was heavily hit by the covid-19 pandemic. So many businesses shut down and people lost their jobs. The same way so many contract obligations could not be met due to lockdown and the likes which restricted movement, all in a bid to prevent and contain the spread of the virus. This article will be focused on the effect of the Pandemic on contracts in commerce and how the Force Majeure Clause can help contractual parties prepare for unforeseen setbacks like the Covid-19 virus and also save them from contractual liability caused by a delay or non-performance of their contractual obligations.
WHAT IS FORCE MAJEURE?
The term force majeure is originated from a french word and it translates to “superior or greater force”. An attempt at defining it especially as it relates to commercial transactions would be an “unforeseeable and supervening event or series of events which may prevent a contracting party from performing their contractual obligations to another that is completely beyond the control or powers of the defaulting party. In simpler terms, force majeure refers to events and occurrences which in itself render the fulfillment of contractual promises impossible.
The court in trying to explain the force majeure clause in the case of Diamond Bank Ltd v. Ugochukwu held per Rhodes-Vivour, JCA, (as he then was) that for force majeure to occur, there must be an event which significantly changes the nature of the contractual rights of the parties that it would be unjust to expect the parties to perform those rights such as:
Where the subject matter of the contract has been destroyed or is no longer available;
Death or incapacity of a party to a contract;
The contract has become illegal to perform as a result of new legislation;
A contract can be frustrated on the outbreak of war; and
Where the commercial purpose of the contract has failed.
The doctrine of frustration serves the same purpose with the force majeure clause but there is a thin line of difference between them which is outlined below:
Force majeure must be expressly included in the terms of contract before it can be pleaded by a party.
Frustration is factual, that is its application is entirely at the discretion of the court depending on the surrounding circumstances. A.G Cross River State V. A.G Federation & Anor
Where force majeure is relied on, it only delays performance of a contractual obligation or shifts its performance to another time or mandate a renegotiation. So it is left to parties to decide the outcome.
Where frustration is relied on by a contracting part, it serves to discharge the entire contract.
It appears to be flexible and allows for salvaging of the contract by parties.
It is rigid and vitiates the entire contract.
THE IMPORTANCE OF FORCE MAJEURE CLAUSES:
It protects parties from events that are agreed to be outside normal business risk.
it gives contracting parties the flexibility and freedom to decide the terms of their contract, and certainty that these terms will not be altered by legal principles existing outside of the contract itself
ELEMENTS FOR APPLICATION OF FORCE MAJEURE
The application of force majeure clauses in contracts is very narrow. Before parties can be able to rely on force majeure certain elements must be present. These elements include:
The scope of the contract’s force majeure clause must capture the event being invoked as its application is very strict.
It must be shown that non-performance was not foreseeable and the risk of non-performance could not be mitigated.
It must be proved that the contractual performance in question has truly been prevented or rendered impossible, rather than merely more expensive.
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