Whether the contractual relationship is that of an employer and employee, lessee and lessor, mine supplier and the mine, or indeed a construction contract, the onset of COVID -19 has tested contract law principles like no other branch of law. Force Majeure and frustration are topical issues in most board rooms, or more appropriately zoom rooms, as they are considered the primary options for either suspension or discharge of contractual obligations in this era.
That courts expect parties to abide by their contractual relations is a given.
In the case of Colgate Palmolive -vs- Abel Shemu Appeal 181 of 2005 the Supreme Court of Zambia, the highest court in the Republic, stated: “If there is one thing more than another, which public policy requires, it is that men of full age and competent understanding shall have the utmost liberty of contracts and their contracts when entered into freely and voluntarily, shall be sacred and shall be enforced by the courts of justice.”
This decision reinforces the principle that contracts are to be performed by the parties in line with the agreed provisions or stipulations.
In the wake of the Covid-19 pandemic, parties to contracts may be more likely to attempt to either suspend their contractual obligations or completely discharge the contract either on the ground of force majeure or frustration.
Suspension of a contract refers to the temporary cessation of contractual performance. It can be invoked by either party to the contract by citing specific reasons defined in the terms and conditions of the contract. Discharge of the contract merely means the contract has come to an end.
So what exactly is Force Majeure and Frustration?
Force Majeure: – Black’s Law Dictionary defines Force Majeure—French for “superior force“—as an event or effect that can be neither anticipated nor controlled. The term is commonly understood to encompass both acts of nature, such as floods and hurricanes, and acts of man, such as riots, strikes, and wars. Typically, by its very nature, the occurrence of the Force Majeure should not be the fault of either party. In this current era of the Covid-19 pandemic the immediate aspects that comes to mind by most businesses when thinking about their contractual obligations is whether or not Covid – 19 can effectively be invoked as a force majeure event.
It is common place for parties to include a force majeure clause in their contract to ensure that the failure of one party to discharge their obligations under the contract can be excused whenever a force majeure event occurs. It must be appreciated that as a general rule, a force majeure event does not result in the discharge of the contract, but rather a suspension of the contractual obligations of the parties under the contract in issue. Parties are only at liberty to terminate the contract if the force majeure event persists beyond an agreed period of time.
Accordingly, the starting point of whether Covid -19 is a force majeure event will depend on how the force majeure clause was defined in the contract and the conditions for contractual termination as a result of force majeure. Parties may have already stipulated and clearly identified the specific events that the parties agreed would constitute force majeure. Therefore, the first question to be asked is, does the contract in issue contain any Force Majeure clause in it? If yes, the next question would be, does the clause cover any aspect that relates to a global pandemic whose effect can be equated to that of Covid-19? If the first two questions are answered in the affirmative, then Covid-19 would be assumed as covered under such a clause and will be construed accordingly.
A further question to be answered is, can a party to a contract rely on Covid-19 as a force majeure event so as to avoid performance of obligations? In answering this question, various tests have to be conducted and these include proving that the non-performance of a party’s obligation is due to events outside his control or that such events prevented the party’s performance under the contract and further that an event defined in force majeure event occurred to which the parties can rely on. Therefore, as stated above, for Covid-19 to be relied on by a party as an event of Force Majeure, the relevant provisions of the contracts in issue must be closely examined to determine whether such a pandemic is one that could have been in contemplation of the parties at the time of crafting the Force Majeure clause.
The effect of occurrence of a Force Majeure is that it renders a contract either suspended or frustrated. If the duration of the intervening event/force majeure event is only for a short period of time compared to the length of the contract under consideration, then the contract is deemed to have been suspended instead of frustrated.[1] This means that an intervening event of a short duration cannot frustrate a contract of longer lifespan and any termination on the basis of the intervening event is a breach of contract. If therefore follows that either party to the contract is temporarily discharged from performance of contractual duties until the intervening event ceases to exist.
Frustration of Contracts – Black’s Law Dictionary defines frustration as ‘the prevention or hindrance of the attainment of a goal, such as contractual performance’ and in relation to ‘contracts’ the terms has been described as “the doctrine that if a party’s principal purpose is substantially frustrated by unanticipated change in circumstances, that party’s duties are discharged and the contract is considered terminated”. It is thus true that a contract may be terminated due to frustration (as a result of occurrence of a frustrating event). A frustrating event is an event that is unforeseen and is beyond any of the party’s control rendering the actual performance of the parties’ respective obligations practically impossible. It may also be an event that significantly changes the nature of the outstanding contractual rights or obligations of the parties.
In light of the outbreak of the Covid-19, the Government of the Republic of Zambia, like other Governments world over, has imposed a number of measures which include quarantine of people suspected to have travelled to Covid-19 risk areas; directive for people to stay at home, and restricted movements (except for those that are deemed necessary). These measures have the potential of preventing people from moving from one place to another which may ultimately make it difficult for a party to a contract to perform his/her/its obligations that requires him/her/it to move from one place to another to either deliver goods due to localised lockdown measures, for example or to perform a contract that requires his physical presence on site. This may be a frustrating event depending on the nature of the contractual obligations in issue. To succeed on a claim for frustration as a result of Covid-19, a party will need to show that object, key to performance of the contract is unavailable due to a localised lockdown or quarantine or that the method of performance of the contract is impossible and no other different method of performing is available as a result of the localised lockdown. Once the above conditions are met and/or proved, frustration results into termination of the contract and relieves the parties of their respective obligations under the contract. The Law Reform (Frustrated Contracts) Act, Chapter 73 of the Laws of Zambia, recognizes frustration of contracts and provides for adjustments of rights and liabilities of parties to frustrated contracts which includes recovery by the parties of any money paid under the contract before it became frustrated.
Suspension of a contract refers to the temporary cessation of contractual performance. It can be invoked by either party to the contract by citing specific reasons defined in the terms and conditions of the contract. Discharge of the contract merely means the contract has come to an end.
So what exactly is Force Majeure and Frustration?
Force Majeure: – Black’s Law Dictionary defines Force Majeure—French for “superior force“—as an event or effect that can be neither anticipated nor controlled. The term is commonly understood to encompass both acts of nature, such as floods and hurricanes, and acts of man, such as riots, strikes, and wars. Typically, by its very nature, the occurrence of the Force Majeure should not be the fault of either party. In this current era of the Covid-19 pandemic the immediate aspects that comes to mind by most businesses when thinking about their contractual obligations is whether or not Covid – 19 can effectively be invoked as a force majeure event.
It is common place for parties to include a force majeure clause in their contract to ensure that the failure of one party to discharge their obligations under the contract can be excused whenever a force majeure event occurs. It must be appreciated that as a general rule, a force majeure event does not result in the discharge of the contract, but rather a suspension of the contractual obligations of the parties under the contract in issue. Parties are only at liberty to terminate the contract if the force majeure event persists beyond an agreed period of time. Accordingly, the starting point of whether Covid -19 is a force majeure event will depend on how the force majeure clause was defined in the contract and the conditions for contractual termination as
Accordingly, the starting point of whether Covid -19 is a force majeure event will depend on how the force majeure clause was defined in the contract and the conditions for contractual termination as
longer lifespan and any termination on the basis of the intervening event is a breach of contract. If therefore follows that either party to the contract is temporarily discharged from performance of contractual duties until the intervening event ceases to exist.
Frustration of Contracts – Black’s Law Dictionary defines frustration as ‘the prevention or hindrance of the attainment of a goal, such as contractual performance’ and in relation to ‘contracts’ the terms has been described as “the doctrine that if a party’s principal purpose is substantially frustrated by unanticipated change in circumstances, that party’s duties are discharged and the contract is considered terminated”. It is thus true that a contract may be terminated due to frustration (as a result of occurrence of a frustrating event). A frustrating event is an event that is unforeseen and is beyond any of the party’s control rendering the actual performance of the parties’ respective obligations practically impossible. It may also be an event that significantly changes the nature of the outstanding contractual rights or obligations of the parties. In light of the outbreak of the Covid-19, the Government of the Republic of Zambia, like other Governments world over, has imposed a number of measures which include quarantine of people suspected to have travelled to Covid-19 risk areas; directive for people to stay at home, and restricted movements (except for those that are deemed necessary). These measures have the potential of preventing people from moving from one place to another which may ultimately make it difficult for a party to a contract to perform his/her/its obligations that requires him/her/it to move from Individual cases have to be looked at differently to know whether force majeure of frustration is to be relied upon by a party to a contract.
In a nutshell, under Zambian law, whether Covid-19 is a force majeure or frustrating event resulting in a temporal suspension of contractual obligations or complete discharge of the contract largely depends on the contractual provisions in issue and the nature of the obligations to be performed.
Client Legal Alert – Equitas Legal Practitioners@2020
*This scholarly article is a general guide and does not contain definitive legal advice. Readers considering taking action on any of the issues discussed should speak to their legal advisors before taking any such action. Equitas disclaims any liability whatsoever arising from acting on this article.
