COVID – 19 AND FORCE MAJEURE CLAUSE IN NIGERIA

The outbreak of COVID – 19 popularly known as the Corona Virus, which was first detected in Wuhan, China, has now spread to more than 100 locations worldwide including Nigeria. This pandemic has altered human and business lives in all ramifications. Its economic impact continues to build by the hour, significantly disrupting economic activities, particularly the demand and supply chains. The result of this is that individuals and businesses may encounter difficulty in performing their obligations under contracts entered into before the outbreak. Can the force majeure clause exonerate parties to such contracts from carrying out their obligations or exercising delay in doing so?

Although similar events such as the Ebola Virus outbreak have rocked the economy at some point in Nigeria’s history, there seems to be no reported case law on the operation of force majeure clauses in the context of such disease/virus outbreaks. In light of recent happenings, we would like to guide you on how such clauses might be interpreted and applied in general commercial contracts, in light of the current circumstance.

What is a Force Majeure clause?

Force Majeure translates as “superior force“. Force majeure clauses are express contractual clauses which alter parties’ obligations and/or liabilities under a contract when an extraordinary/superior event or circumstance beyond their control prevents one or all of them from fulfilling those obligations.

Under Nigerian Contract Law, Parties to a contract are free to construct the terms of their contract as they desire, including terms concerning Force Majeure. Where this clause is included in the contract, the usual practice is for Parties to specify the events constituting Force majeure and the consequences of the occurrence of such events. Ultimately, the purpose of such a clause is to state as clearly as possible, the circumstances under which a contracting Party is released from its contractual obligations. A Party affected by superior force may invoke the clause to avoid liability for breach of contract due to failure to perform its obligations, such failure arising from the force majeure.

For an event to be regarded as a force majeure event, it must pass these three tests:

1. Externality – the event must be beyond the control of the contracting parties.
2. Unpredictability – the event cannot be anticipated / foreseeable / expected.
3. Irresistibility – the event/circumstance is unavoidable.

Again, it is important to emphasize that Parties are free to negotiate the scope of the clause and the particular instances to be included within the clause. This is so in light of the fact that the Party relying upon the clause must show that the event falls under its contemplation or constitutes a Force Majeure, with the resultant effect of partially or wholly preventing such party from performing the contract.

Is COVID -19 a force majeure event?

As already emphasized, whether or not the COVID – 19 will constitute a Force Majeure will depend on the wordings of the Clause. Generally, Force Majeure clauses adopt one of the following approaches in defining the type of event which may depend on its impact, exonerate a party under a contract:

1. Reference to specific events: Such as insurgence, war, flood, acts of government, plagues or epidemics. Where the word plague or epidemic has been used, it will undoubtedly cover COVID – 19. An act of government will include imposed travel restrictions, quarantines, or closed borders just as we currently have in Nigeria, as a result of the outbreak.
2. Setting out general parameters: A contract may, for example, refer to events or circumstances “beyond the parties’ reasonable control”; however, whether this covers issues arising from COVID-19, will be a question of interpretation of specific facts.

A Force Majeure clause may also be a combination of the above approaches and in some rare situations, just the phrase “Force Majeure” itself is used. It is submitted that regardless of whatever approach is adopted, giving the nearly unusual nature of the COVID-19 outbreak and the actions of the government in Nigeria in response, it is likely that COVID-19 would constitute a Force Majeure event in most circumstances.

Noteworthy is the fact that just because a Force Majeure event has occurred (that is, where the above three tests have been passed) does not automatically mean that the parties will be shielded from liability for failing to perform or delaying in doing so. To put in context, even if the COVID-19 outbreak and the consequential government actions are the types of events covered by the Force Majeure clause in question, the liability of parties for non-performance of their obligations aren’t automatically absolved. The question as to the impact on the affected party’s ability to perform its contractual obligations must also be considered.

Usually, Force Majeure clauses will specify the circumstances in question must-have for the clause to be activated. Where this is not the case, it boils down to an interpretation of the peculiar facts of the case. Ultimately, the trigger of a Force Majeure clause will depend on the existence of the clause within the contract itself. The concept of Force Majeure is a creation of the contract and not a rule of general application, thus, if there is no Force Majeure clause, the affected party will have to depend on other provisions of the contract for possible avenues out of its difficulties. In the absence of such avenues, an alternative will be to rely on the common law contract doctrine known as Frustration.

Data Privacy and Employment Contract Concerns

Under the Factories Act (Cap F1 LFN 2004), and Labour Act (Cap L1 LFN 2004), an employer is required to protect the health and safety of workers at the workplace. Employers are, under employment contracts, obliged to provide a safe system and place of work and to take measures to ensure the safety of the workers. As a result of this, especially in light of the COVID-19 outbreak, employers have begun to request information about medical conditions, personal contacts or the latest trips of their employees. Consequently, this data which may lead to an identification of possible patients may have adverse implications on data security. The Nigeria Data Protection Regulation 2019, makes provision for the security of sensitive personal data and the penalties for not complying with the provision of the Regulations. It does not make provisions for situations in which such sensitive personal data may be shared. Although so far, there have been no cases of violations of personal information in connection with the COVID-19 outbreak, it is suggested that government agencies should issue additional personal information protection notices in connection with the outbreak, such that, other than providing information to public health and other related authorities in connection with COVID-19 prevention and control, no additional personal information may be disclosed to other agencies, organizations, or individuals.

Concerning Employment Contracts, there are serious concerns about the implications which may flow from the cessation of work for more than a week. The COVID-19 pandemic and the risk of transmission has caused the Nigerian government to take measures like the closure of the schools for a certain period, postponing judicial affairs and cancellation of the events where crowded groups come together. The cessation of the activities of public and private institutions due to these measures has also affected business life.

 In light of Section 17(1)(a) of the Labour Act which provides that “where owing to a temporary emergency or other circumstances beyond the employer’s control (the period of which shall not exceed one week or such longer period as an authorized labour officer may allow in any particular case), the employer is unable to provide work, the worker shall be entitled to wages only on the first day of the period in question”, employers may cease to pay salaries and wages, should the cessation of activities take longer than expected. The Labour Act does not make provision for employees that cannot work or cannot be called to work as a result of superior events such as the COVID-19 pandemic. Unless under Section 7(1)h of the Labour Act, which enables parties to a contract of employment to make provisions for special conditions such as force majeure, Nigerian law has no general position on force majeure within employment contracts.

The Labour Act though does not apply to every type of employee, and more reliance is made on the provisions of each executed employment contract. At the date of this Article, the government has not ordered companies to take specific measures related to their employees’ remuneration. Considering the length of time of the cessation, it is feared that employers may begin to consider suspending or even terminating contracts of employment, to avoid the payment of wages/salaries.

Conclusion

The COVID-19 outbreak exhibits novel challenges and is already disrupting contractual relationships. In Nigeria, local businesses particularly the importation business (with special attention to delivery issues) are beginning to feel the brunt. The lack of a robust protectionist regime for employees under employment contracts, especially in superior events, such as we have now, will soon be brought to bear. 

Whether the courts will ultimately determine that COVID-19 constitutes a force majeure is yet to be known, but we can expect that many court filings in the months and years to come.