The Raging ‘‘Third World War’’: Why Covid-19 May Defeat The Contractual Rights Of Force Majeure – Sola Adeyemo
No one envisaged it. Nobody saw it coming. The rage of the Covid-19 has been quite phenomenal in all ramifications. The big bull is here; the all-powerful Coronavirus and its deadly fangs have unleashed untold fear, terror, and hardship on all of us. From the Americas to Asia, from Europe to Africa and from Australia to Oceania; Covid-19 has swept through the seven continents of the world like a deadly hurricane. Right now, it’s only because the Antarctica is aloof and not habitable for human beings, that’s why this daredevil cannot touch it.
It’s an understatement to say that this Wuhan-born virus has wreaked untold havoc on our world and its devastating effects may take the whole world about five years to mop up, according to experts. But what is it…what is Coronavirus or Covid-19 as it’s been renamed lately?
According to the World Health Organization (WHO), Coronaviruses are a large family of viruses that are known to cause illness ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). Medical experts have affirmed that the virus can be transmitted from person to person, usually after close contact with an infected patient, for example, in a household, workplace, or health care facility.
Coronavirus outbreak has negatively impacted on global economy in a very shocking way and world renowned economists, groups, rating agencies, business schools and top ivory towers have all been taken aback by the ravaging powers of this raging storm.
According to World Economic Forum, “The shock to the global economy from COVID-19 has been both faster and more severe than the 2008 global financial crisis (GFC) and even the Great Depression. In those two previous episodes, stock markets collapsed by 50% or more, credit markets froze up, massive bankruptcies followed, unemployment rates soared above 10%, and GDP contracted at an annualized rate of 10% or more. But all of this took around three years to play out. In the current crisis, similarly dire macroeconomic and financial outcomes have materialized in just three weeks.
Earlier this month, it took just 15 days for the US stock market to plummet into bear territory (a 20% decline from its peak) – the fastest such decline ever. Now, markets are down 35%, credit markets have seized up, and credit spreads (like those for junk bonds) have spiked to 2008 levels. Even mainstream financial firms such as Goldman Sachs, JP Morgan and Morgan Stanley expect US GDP to fall by an annualized rate of 6% in the first quarter, and by 24% to 30% in the second. US Treasury Secretary Steve Mnuchin has warned that the unemployment rate could skyrocket to above 20% (twice the peak level during the GFC).”
Well, it must be said that one thing saw the coming of Coronavirus and has told the world to prepare for its attendants effects on contractual agreements and business engagements – it’s named FORCE MAJEURE.
To any layman out there, a force majeure could be broken down is simple terms to mean ‘‘contractual clauses which alter parties’ obligations and/or liabilities under a contract when an extraordinary event or circumstance beyond their control prevents one or all of them from fulfilling those obligations.
Depending on their drafting (which differs from one country to the other), such clauses may have a variety of consequences, including: excusing the affected party from performing the contract in whole or in part; excusing that party from delay in performance, entitling them to suspend or claim an extension of time for performance; or giving that party a right to terminate. We talk principally below about parties being excused from performance entirely, but many of the principles are common to these different varieties of clause.
In English and Scottish law, force majeure is a creature of contract and not of the general common law. It, therefore, differs from some other legal systems where force majeure is a general legal concept and where courts may declare that a particular event, such as a pandemic like Covid-19, is a force majeure event.
There have been instances in the United States where force majeure situations/clauses have played significant roles in litigations arising from breach of contractual agreements by a party or the other. It’s also a known fact that the issue of force majeure is universal but its interpretations and implementations may differ from countries to countries.
Coming back home, one would like to examine the clause of force majeure and how same can be summoned or provoked in this present economic realities occasioned by the Covid-19 pandemic.
It must be said that Covid-19 would naturally affect a larger percentage of our sectors in Nigeria, especially the financial sector. And one isn’t sure if players in the sector are fully prepared to abide by the tenets of the force majeure clause in this present circumstance the world albeit Nigeria has found itself. I woke up in the wee hours today asking myself how many insurance companies/brokers, banks,mortgage firms,high-street lenders and other players in this sectors would without grudge succumb to the force majeure clause when the chips are down. It’s a million dollar question!
At this juncture, it’s pertinent to note that Guaranty Trust Bank recently surprised industry watchers and its customers by showing empathy to via its 90-day moratorium that seeks to ease the burden of loans and other credit facilities’ repayments off its customers. Kudos must go to GT Bank for leading the way in this regard by freezing loan repayments for three months for its customers. The bank has in so doing has allayed the fears of debtors who are right now worried if their loan agreement(s) is covered by Covid-19 pandemic. This is impressive! And I think other commercial banks must take a cue from this innovative and thoughtful bank.
Now, worried by what the law of the land says about force majeure in this environment, I spoke to a lawyer friend who’s an erudite legal luminary of international repute and former gubernatorial aspirant in the State of Osun – Dr. (Prince) Ayoade Adewopo – about the looming battle between Covid-19 and force majeure (with emphasis on Nigeria). My friend who holds a Doctor of Jurisprudence degree and a masters in International tax law from Universities in the US and Switzerland reckons it’s a very simple situation. According to Adewopo , ‘’the principle of force majeure differs from one country to the other, but be that as it may, any duly signed contractual agreement has to be followed to the letter by the agreed parties and this includes the clause of force majure’’.
Personally, most contractual agreements which I’ve seen or have been party to normally adopt an approach to defining the type of event which may, depending on its impact, relieve a party from contractual liability:
A larger percentage of the contract papers list specific events which may include events such as war, terrorism, earthquakes, hurricanes, acts of government, plagues or epidemics. Now, I think where the term epidemic, or pandemic, has been used in any contractual agreement that will clearly cover Covid-19. And the latter will have to submit to the superior contractual powers of FORCE MAJEURE.
According to another seasoned legal practitioner, Mr. Efe Ize-Iyamu, FORCE MAJEURE may not win the battle between it and Covid-19 if we further break it down. Sounding a note of caution, he says… ‘’the downside of force majeure is this; even if the Coronavirus pandemic or any pandemic for that matter is a type of event covered by the force majeure clause , the next question we may want to consider is the impact on the affected party’s ability to perform its contractual obligations as it is common for force majeure clause(s) to specify the impact that the event or circumstances in question must have in order for the clause to be triggered.
Ize-Iyamu further adds that “the Covid-19 crisis leading to lockdown in Lagos, Ogun and the FCT (in Nigeria) will necessarily lead to disruptions in contractual agreements, particularly in terms of delivery time, in many sectors . This disruption will trigger various disputes largely due to failure to perform or delayed performance of contractual obligations. For example questions will arise as to whether this crisis constitutes a force majeure event. This dispute should not necessarily end up in litigation, it is important that lawyers advise their clients to renegotiate (where possible) those contractual rights impacted by this crisis”.
And to make matters worse for contractual agreements which are yet to run their full course before the outbreak of Covid-19 pandemic, the World health Organization (WHO) yesterday made a shocking pronouncement during a routine world press briefing by saying the Covid-19 is just starting – the world body adds definitively that the virus is going to be here with us for a long time. This invariably means that the “third world war” between Covid-19 and the force majeure continues even as countries like Japan, the US and a host of other countries in the EU are mulling the idea of dragging China to the Hague for inflicting untold hardship on the world’s inhabitants. Hmmm! I give up – it’s complex.
In the meantime, good luck to our world. And let everyone just stay safe!
Sola Adeyemo is a Writer,Public Affairs Analyst & Media Entrepreneur.
He’s the President of Lagos State Online Media Publishers(LASOMP) and the Coalition of Online Publishers in West Africa(COPUWA).