On 30th January 2020, the new coronavirus disease: COVID-19, was declared a public health emergency of international concern by the World Health Organization and since March 2020, Ghana has recorded a number of cases of this disease.
With the swift increase of this pandemic, the Government of Ghana imposed restrictions to curb the spread of the disease. Consequently, this begs the question, do the restrictions imposed by the Government have an effect on contracts, transactions and projects? This short article seeks to answer this question.
To assist the Government in its fight against the disease, Parliament passed the Imposition of Restrictions Act, 2020 (Act 1012), which gave the President the power to impose certain restrictions by Executive Instrument (“EI”). The President has since then issued four EIs imposing various restrictions on the movement of persons, prohibition of gatherings, closure of schools and some business premises.
Although restrictions have been imposed, the EIs create exemptions for certain persons and specified services involved in the distribution and marketing of food, beverages, pharmaceuticals, medicine, paper and plastic packages; mining workers, staff of fuel stations among others.
The implementation of these restrictions imposed under the EIs curtail the continuous performance of the obligations of parties to a contract or a transaction. In contemplation of this, parties to a contract usually include a force majeure clause to cater for such unforeseen circumstances.
- What is a force majeure and the implication of a force majeure clause?
Black’s Law Dictionary defines force majeure as “an event or effect that can neither be anticipated nor controlled”. Unforeseeable events include occurrences such as wars, insurrections, flood, fire, industrial action, government action and so on, which prevent a party from performing its obligations under the contract through no fault of that party. Thus, a force majeure clause regulates such events, which are unforeseeable, unavoidable and beyond the control of the contracting parties.
Before seeking to rely on a force majeure clause in a contract, the parties must have a detailed consideration of the wording of the force majeure clause, the contract as a whole, the circumstances that have arisen as well as an exploration of alternative means of performing the obligations under the contract.
When a force majeure clause is properly invoked, the contractual obligations of both parties are either suspended or terminated without any liability. Thus, both parties are effectively released either temporarily or permanently from their contractual obligations. Nevertheless, the implication for the parties may depend on consequences and remedies, which have been expressly contemplated by the contract.
As a practical step, the party seeking to rely on the force majeure clause must serve the required notices in accordance with the notice provisions stipulated in the contract.
Remedies available for force majeure include but are not limited to, extension of time to perform those contractual obligations, suspension of contractual performance, termination of the contract or recovery of sums paid before the force majeure event occurred.
Where a contract does not include an operative force majeure clause, then a party may look to the doctrine of frustration to see if the contract has been terminated for frustration.
- Does the lockdown constitute as a force majeure event?
A critical point to address is whether the restrictions imposed by the Government amount to a force majeure event. A force majeure clause is a creature of contract and a party’s right to rely on such a clause depends on the contractual construction and the application of factual evidence. Some clauses opt for a wider definition making reference to any “event or circumstances beyond reasonable control”. However, this may lead to uncertainty and may require further interpretation for clarity.
Conversely, other contracts expressly list events that may constitute a force majeure event such as war, floods, fire outbreaks, pandemic, epidemic, government actions and so on. A party may trigger the force majeure clause when any of the events listed occurs.
With the rapid increase in the COVID-19 pandemic, the various restrictions imposed by the Government such as the partial lockdown may constitute a force majeure event since those restrictions were not contemplated by the parties at the time of contracting and are beyond their control. Additionally, for the partial lockdown to be considered as a force majeure event, there must be a causal link between the event and the non-performance of the contractual obligation. Thus, reference may be made to circumstances or the partial lockdown restrictions having “prevented”, “hindered” or “delayed” performance of contractual obligations and these terms require different levels of impact on performance before the party will be relieved from liability.
For example, a scheduled project by a foreign investor is unlikely to start on the agreed commencement date due to the restriction on travel to Ghana. In this instance , the foreign investor may be able to rely on the force majeure clause in the Service Level Agreement.
- What happens next?
Consequently, the force majeure clause may suspend the performance of the contractual obligation of the affected party while the lockdown subsists and in some cases, it may give the right to terminate the contract.
Note that, a force majeure event such as the partial lockdown is likely to affect performance of contractual obligations like the provision of goods and services, when the performance of such obligations are physically or legally impossible and not merely because performance will be expensive or less profitable. However, it is unlikely to affect the performance obligations such as making payments for goods and services received as well as contractual obligations that do not require physical presence and can be performed remotely.
For further information, you can contact Veritas International Nominees and Trustees and our advisors will be happy to assist.
By Ewoenam Genevieve Atiase and Ewurama Osam Tawiah
Veritas International Nominees & Trustees || Aletheia Law LLP
w: Veritas International Nominees and Trustees
t: 030 296 4498
l: Rooms 8 -10, 4th Floor, GNAT Hall, Teachers Hall Complex, Adabraka-Accra
