Abiodun Owonikoko participates in the IR Virtual Series – International Contracts: How has the global pandemic impacted international contracts?

Foreward by Andrew Chilvers

The COVID-19 pandemic is one of those once-ina-lifetime events that few people predict but which affects everyone – individuals, businesses and governments.

During the past four months the pandemic has caused huge disruption to companies across the globe as many have suddenly found it impossible to fulfil their contractual obligations. From retail and the construction industry to hospitality and manufacturing, every area of the world economy has suffered.

As a consequence, lawyers and their clients are now rushing to look more closely at the force majeure doctrine as an option for businesses that are no longer able to perform their contractual obligations.

Different legal systems have different legislative definitions for force majeure. For instance, English common law – unlike in civil law – has no universal definition. The ability of a contracted party to invoke force majeure will depend on the presence of a force majeure clause and the particular terms set out in the contract.

Can force majeure justify a suspension of performance or the unilateral imposition of new deadlines or cancellations of purchase orders?

Nigeria is a common law country and the doctrine of force majeure derives largely from English law. In principle the case of force majeure is ordinarily in the contract where it has to be defined what events constitute a force majeure. If it is not expressly provided for in the contract, you may have to fall on the doctrine of frustration, which is implied and imposed by law. Most international contracts in Nigeria tend to be governed by the law of contracts and force majeure is essentially understood to be an event that significantly changes in nature the contractual rights of the parties.

Where problems occur is when you have to define those issues as part of the force majeure event. It’s very clear that a pandemic such as COVID-19 was never contemplated by anybody. The essential elements are there to cover the COVID-19 pandemic, so there’s every reason that an agreement can be made between both parties. If you don’t have a force majeure clause, in any new agreement, you may need to look at the Legal State law Contract Reform Act of 2015. Section eight of it defines events of frustration and how the rights of parties can be adjusted. But it does not specifically mention anything. Any particular contract in general should contain the possibility of uncertain events.

Does the COVID-19 crisis and possible breach of international contracts fundamentally alter assumptions surrounding risk allocation, supply chains and access to markets?

In Lagos regarding rentals and leases, courts are about to determine whether ‘frustration’ via force majeure operates in rentals depending on the specific nature of the lease agreement. The COVID-19 pandemic renders it impossible, for instance, to use the property for its intended use. We have a lot of shopping malls with number of franchises from abroad and they have had to shut down during this period. As a result, tenants, too, are unable to operate and will press for some kind of force majeure accommodation for a reprieve from their contracted obligations.

Another point I believe likely to become contentious will be in terms of expatriate employees. Many of them are usually paid in a foreign currency and most expat dominated businesses have suffered. The oil and gas industry, for instance, has all but shut down and people can no longer work on site. But the oil companies have to continue to accrue salaries for many workers in forex as well as suffering oil price cuts. This is going to be a big deal in Nigeria and something that nobody could have foreseen. The law here is very strict about employment and once you employ someone, you must pay for employees willing to work. How will this work with force majeure? I foresee that employees and employers may find this a very risky thing to try in court and it may be better for them to work towards some kind of negotiated settlement.

All this was never taken into account pre COVID-19, but will need to be factored in going forward.

Where a contract does not contain a force majeure clause, how simple is it for parties to consider the doctrine of frustration? In which jurisdictions would this apply?

Nigeria is a common law country and there is no difference regarding frustration between the UK and Nigeria. It’s more or less mirrored after the UK. Frustration can only apply to events that occur after the contract has been agreed. Generally, it only applies where events occur that make the performance of the contract impossible, illegal or something radically different from that originally envisioned by both parties.