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HomeNewsCOVID-19 RESTRICTIONS: THE FATE OF CONTRACTUAL OBLIGATIONS; PRINCIPLES OF FORCE MAJEURE AND...

COVID-19 RESTRICTIONS: THE FATE OF CONTRACTUAL OBLIGATIONS; PRINCIPLES OF FORCE MAJEURE AND FRUSTRATION EVALUATED IN A NIGERIAN CONTEXT

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BY FRANKLIN AMANDI Esq.

A lot has been said about the possible effect of the COVID-19 pandemic situation on contractual obligations likewise have several expositions been made by lawyers in different contexts. This article seeks to dissect these legal realities to the understanding of lay Nigerians.

Let us have a look at these possible Nigerian scenarios; what happens If I am an uber driver under a car hire agreement for a specific period that requires me to pay a weekly hire fee of 50,000 (fifty thousand naira only), the agreement states that the car hire is for the purpose of uber and that the car hire fee is to be paid there from but I can no longer pay the hire fee in the face of the current lockdown in the country? Or I contracted with a cement company for the supply of one trailer load of cement for my building project going on in my village and the cement company is currently in a position that they can no longer deliver the cement at the agreed time in the light of the current situation; or I have collected a fee of 100,000 (hundred thousand naira only ) each from 100 persons as course fee for on brief writing training that was supposed to held last week but failed to carry out the training because public gatherings have been prohibited by the COVID-19 Executive Directive. These and many more are the types of disputes that are likely to arise between both individuals and corporate bodies in Nigeria who may not be able to fulfill their contractual obligations due to the pandemic situation.

Ordinarily parties are expected to be bound by their agreements; the principle of absolute contract is to the effect that a man is strictly bound by his contract except there is express limitation of liability. The rationale is that contracting a party can always provide for unforeseen contingencies in his contract and if he fails to do so; then he must be taken to have assumed to be bound by the contract no matter what happens.

The force majeure clause is instructive in understanding the above position, this principle originated from old Roman Law, it is a French phrase which means a superior force, it informs parties of events that may constitute a superior force so as to suspend or excuse performance or permit for an alternative mode of performance. This principle is civil law principle and is contractual in nature which means that it can only be given life by the parties by providing for the effect of such superior force while making their contract. So the parties must provide for it in their contract before it can avail them, the clause can list specific situations or can make a general provision to cover a class of events the most generic clause being “Act of God” though its coverage may differ from case to case. Can the COVID-19 Pandemic be interpreted to be an Act of God?

Does it mean that there is no remedy for parties in the absence of this clause in their contracts? This appears to have been the position prior the decision of Blackburn, J. in the 1863 case of Taylor v. Caldwell [1863] 3 B. & S. 826; [1861-73] All E.R. 24 where the common law doctrine of frustration was laid down. It is trite law that the law cannot command the doing of the impossible or that which is illegal, but prior to this decision, people must have been held responsible for not being able to do an “impossibility” or “illegality” because they failed to provide for the superior event that has made the performance of the contract impossible or illegal. Frustration is a common law doctrine which acts to set aside contracts where an unforeseen event renders the contractual obligations impossible.

While force majeure is contractual in nature, frustration is based on facts and is totally at the discretion of the courts to decide whether the doctrine will apply to relieve a party of liability, in doing this there are a lot of factors to be considered by the courts and the considerations may differ according to the peculiar nature of each case. These considerations can be pruned down to two groups: those based on implied term theory and those based on radical change of obligation theory.

The implied term theory states that a contract based on the continued existence of a thing is frustrated if due to no fault of either party, the thing ceases to exist. This has further extended to a change in a state of affairs. An example can be found in one of the scenarios I gave at the beginning, the brief writing training which I proposed to hold was subject to the fact that it was free and lawful for people to gather in large numbers in public, if by the current COVID-19 Executive Order it has become unlawful to hold public gatherings, it is not expected of me to go on with the training in the face of it having become illegal. This principle has been adopted into Nigerian law by Wali, J.S.C.(as he then was) in the case of Mazin Eng. Ltd. V. Tower Aluminium (1993) 5 NWLR (Pt. 295) 526 at 537.

On the other hand, the radical change of obligation theory can be found under different heads like, “destruction of the foundation of the contract” and a change of circumstances so fundamental as to be regarded by law as striking at the root of the agreement”. In the first scenario I gave earlier, rendering uber services is the root of the car hire agreement and it is not to be expected for the hire to continue since the root of the car hire (uber services) has been changed by the current lockdown due to COVID-19.

In the face of these realities one may have to review his agreements to see whether the force majeure clause in inserted therein such that it will avail you. Note that if that is so you will need to inform the other party of the clause and the fact that your relying on it to excuse or delay your obligations or you may further need to seek legal advice on what is the prospect of your peculiar case and whether frustration will apply. The following can constitute frustrating events;

  1. Subsequent legal changes; for instance the current COVID-19 Executive Order signed into which has changed the law as regards some things like public gatherings, movement and in fact normal flow of business. See Obayuwana V. Governor of Bendel State 1982 SJSC 167.
  2. Out- break of war.
  3. Destruction of the subject matter of the contract.
  4. Government requisition of the subject matter of the contract.
  5. Cancellation of expected events; for instance weddings that have been cancelled because of the Pandemic situation when payments may have been made for halls or other services.
  6. Miscellaneous events; it is obviously impossible to list all types of events that can lead to frustration of a contract. New situations arise as cases come before the courts; according to Sagay “only after the courts have decided can an event be recognized as a frustrating event”. It is therefore safe to say that it is for the courts to determine whether a pandemic situation will generally constitute a frustrating event outside the specific frustrating events that we have due to the pandemic situation like subsequent legal changes, cancellation of events; etc .see AG CROSS RIVER STATE V. AG FEDERATION & ANOR (2012) LPELR-9335(SC)

”The courts have recognized certain situations or events as listed below that constitute frustration – a. Subsequent legal changes b. Outbreak of war. c. Destruction of the subject matter of contract. d. Government requisition of the subject matter of the contract. e. Cancellation of an expected event. Cricklewood Property & Investment Trust Ltd v. Leightons Investment Ltd. (1945) 1 All ER 252 Knell v. Henry (1903) 2 KB 740 Obayuwana v. The Governor of Bendel State (1982) Pg. 167 Araka v. Monier Construction Company Ltd. (1978) 2 LME Pg.60. ln other words, a court would recognize that a contract is frustrated where after the contract was concluded, events occur which make performance of the contract impossible, illegal or something radically different from that which was in the contemplation of the parties at the time they entered into the contract. A contract which is discharged on the ground of frustration is brought to an end automatically by the operation of law, irrespective of the wishes of the parties.” Per ADEKEYE, J.S.C (Pp. 50-51, paras. B-A)

PHCN & ANOR v. ATLAS PROJECTS LTD (2017) LPELR-43622(CA)

“The person or party who falls back on the doctrine of frustration as a defence acknowledges the fact of the existence of a valid contract between him and the party on the other side but for some unforeseen circumstances which could not be attributed to any of the parties, the agreement or contract was aborted and thus cannot be executed. In the instant case, the Appellants have acknowledged the existence of the contract in terms of Exhibit ‘C’ but argued that they cannot be tied to the terms of that contract due to some intervening, unforeseen circumstances as in the inability of the Appellants to raise funds to execute or discharge their own part of the agreement. ?Exhibit ‘C’ is no doubt the contract document referred to by parties on both sides. Same was signed or executed by them on the 11th November, 2008. The terms of the contract are clearly set out in that document and the duties and obligations of either party to the contract also clearly spelt out as for instance, the contract document stipulates among others that:- “CONTRACT PERIOD This official works order requirements must be satisfactorily completed within three weeks from the date you take possession of the Official Works Order. PAYMENT A 15% down payment as mobilization fees would be paid to you. The balance will be paid after certifying delivery with SRA of the material. You will be paid through a certified invoice of your company. MAXIMUM LIABILITY This Work Order shall remain firm and under no circumstances shall PHCN Yola Electricity distribution company entertain any upward review in price(s) or variation in scope except for agreed variation in material(s) rate as might be required by this Company. Any materials damage their replacement shall be bone by your Company without extra cost to Yola Electricity Distribution Company.” ?The defence of frustration as a doctrine presupposes the premature determination of an agreement between parties, lawfully entered into and which is in the course of operation at the time of its premature determination, owing to the occurrence of an intervening event or change of circumstance so fundamental as to be regarded by law both as striking at the root of the agreement and entirely beyond what was contemplated by the parties when they entered into the agreement. See: The A-G Cross River State v A-G Federation (2012) LPELR – 9335 (SC); Araka v Monier Construction Company (Nigeria) Ltd (1978) All NLR 219 or (1978) 6 – 7 SC 7 where it was held that the doctrine applies to all categories of contract. See further, Jacob v Afaha (2012) LPELR -7854 (CA). This Court in Diamond Bank Ltd v Ugochukwu (2008) 1 NWLR (Pt. 1067) has held that the doctrine of frustration has been restricted by the Courts to – (a) Situation where the supervening event destroys a fundamental assumption; and (b) Where force majeure clauses are drafted into the contract. There must be an event which significantly changes the nature of contractual rights of the parties that it would be unjust to expect the parties to perform those rights. Examples are situations where – (1) The subject matter of the contract has been destroyed or is no longer available. (2) Death or incapacity of a party to a contract. (3) The contract has become illegal to perform as a result of new legislation. (4) A contract can be frustrated on the outbreak of war. (5) Where the commercial purpose of the contract has failed. The party relying on the doctrine as a defence must plead and lead satisfactory evidence as self-induced frustration is no frustration at all but a breach of contract. See Jacob v Afaha (supra). The Plaintiff/Respondent pleaded certain facts at paragraphs 8, 9, 10, 11, 12, 13 and 14 of the Statement of Claim. At paragraphs 8, 12, 13 and 14 in particular, it is averred that: – (8) The plaintiff avers that the contract agreement which was duly signed by it and the Defendants provided among other things that a 15% down payment of the contract sum would be paid to the plaintiff as mobilization fee, while the balance would be paid after certifying delivery with SRA of the materials. (12) The plaintiff avers that on 10th December, 2008, 29th December, 2008, 22nd April, 2009, 12th June 2009, 3rd August, 2009 and 28th August, 2009, the plaintiff wrote several letters to the Defendants reminding them of their imminent breach of the contract agreement by their refusal to perform the obligation imposed on them by the contract, as well as requesting for a variation of the contract sum in terms of prevailing prices of the items, copies of the letters written by the plaintiff to the defendants dated 10th December 2008, 29th December, 2008, 22nd April 2009, 12th June 2009, 3rd August, 2009 and 28th August, 2009 respectively are hereby pleaded and Defendants are hereby put on notice to produce the original copies of these letters. (13) The Plaintiff avers that despite the fact that it fulfilled all the conditions set out by the defendants for the performance of the contract, the Defendants still failed to fulfill their own part of the contract. (14) The Plaintiff avers that the Defendants did not respond to any of the letters mentioned in paragraph 15 above, but rather continued promising and assuring the plaintiff orally, that they would perform the said contract. PW1, the only witness who testified for the Plaintiff/Respondent in the course of his evidence tendered several documents among which are Exhibits K and K1 – 5. These are several letters written for and on behalf of the respondent and directed on the Appellants requesting of the appellants to observe the terms of the agreement and make necessary payments, in particular, the payment of the 15% down payment as agreed between them. There was no response from the Appellants to any of those letters nor did Appellants ever indicate they had certain financial challenges as at the time when Exhibit F, K1 – 5 were written and addressed to the Appellants. It is worthy of note that those facts and evidence coming from the Plaintiff/Respondent were never controverted by the Appellants either by way of cross-examination or in their evidence. The claim by them that the purpose of the contract had been frustrated for lack of funds, is anything but false. Such is a self-induced frustration. A false claim to defence of frustration cannot avail the party or person in default as held in Jacob v Afaha (supra). This is a clear case of breach of the contract entered between the parties in the year 2008.” Per HUSAINI, J.C.A. (Pp. 25-31, Paras. C-A)

It is Germaine to point out that impossibility does not cover commercial or economic hardships or that the performance has become onerous to perform, a more onerous or alternative performance which has not made performance radically different from the intention of the parties cannot invoke the doctrine. Chitty on Contracts 31st Edition stated that a rise in cost cannot be said to be a frustrating event. The application of the doctrine requires a multi-factorial approach factors such as the terms of the contract, its matrix or context, the parties knowledge, expectations, assumptions and contemplation. The applicability of whichever doctrine or principle is according to the circumstances of each case as both the principle of force majeure and the doctrine of frustration have recognizance in Nigerian law. We look forward to what will be the outcome of legal tussles that will arise as a result of contracts that have been put on hold by the pandemic situation and how they will be resolved by Nigerian courts. As Justice Wendell Holmes puts it, “The prophecies of what the court will do and nothing more pretentious is what I mean by law.”

Franklin Amandi Esq.

His Excellency LP. Abuja

08065090050

hisexcellency_legal@gmail.com

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