03 May
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Corona Virus and Force Majeure

A post on American Bar Association’s (ABA) website and a comment by a colleague prompted me to write this. Let me begin by posing a question: can a pandemic be considered as a force majeure? The importance of this post may be revealed later as the economy opens up and creditors require debtors to perform their obligation, repudiate an agreement or hold debtors liable for failure.

 

Covid-19 is shaking the world- all 6 continents are being put to the test- who expected life to be like this some months ago? Covid-19’s impact goes far beyond the health system. It is having enormous amount of political and economic pressure on governments. The unavailability of vaccine, scientists’ lack of understanding of its real nature and the origin makes the virus dreadful. Though billions of dollars are poured to research, no pharmaceutical firm managed to come up with a long lasting solution except socially engineered solutions like social distancing, staying at home, cleaning hands, etc.

 

Obviously, the pandemic has a deep economic impact on start-ups and big firms. Many governments are devising stimulus package and/or these businesses are asking for a bailout. This means that the performance of many commercial agreements will be disrupted: debtors will keep getting emails, phone calls from creditors asking to deliver a thing, sell their service or whatever scenario which comes to your mind.

 

Many debtors’ reason for failure to perform this obligation is actions taken by governments in response to the pandemic, i.e. “they are exonerated from being liable since this is force-majeure”, but is it?

 

Force majeure comes only in two ways: when the debtor could “normally not foresee” and such an act “prevents him absolutely from performing his obligation”; and, article 1793 illustrates the cases which form part of force majeure; however, pandemic is excluded.

 

It is important to underscore that force majeure will not exist when the situation could have normally been foreseen by the debtor or where the debtor’s obligations become more onerous according to article 1792/2/ of the Civil Code.

 

To illustrate, in arbitration between Baruch-Foster Corp (An American Company) v Imperial Ethiopian Government, the tribunal, in an award rendered in Geneva on February 15, 1974, held that “the defendant (Ethiopian Government) has the right to repudiate the contract. The plaintiff has not established the existence of an event of force majeure entitling it to the prolongation of the time limit under the contract”. Outlining the notion of force majeure, the tribunal decided: “it is not enough for an event to constitute force majeure that is should have been beyond the reasonable control of the party affected by it. The very concept of force majeure is based on the assumption that the event alleged should not have been reasonably predictable. This principle is to be found in all national laws and in particular in the laws of Ethiopia and USA.”

 

By the same token, in arbitration between Ethiopian Privatization Agency and Atilla Yildrim, the tribunal held that there is force majeure only when there has been an occurrence that is both unforeseeable and insurmountable. It goes on to point out the essence of impossibility: “[article 1791/2/] is more strict and requires that the occurrence be of a kind that makes it absolutely impossible for a party to perform his obligations as opposed to one which makes it normally impossible in the case of enforceability.”

 

Going on to explain on the point of foreseeability, it came to a decision that foreseeability is a cardinal principle which is taken into consideration by most legal systems in the assessment of the amount of compensation that must be awarded to the aggrieved party. The aggrieved party receives “gains prevented” subject to the limitations imposed by the doctrines of foreseeability, certainty and mitigation.

 

In Cassation Decision Number 26565, the Cassation held that even if a case is sudden and unexpected, there shall not be force majeure where an occurrence could have been predicted and a precaution could have been taken to this effect.  

 

Taking arguments and principle into account, it is relevant to ask if pandemic can be considered as a force majeure. I have not come across any Ethiopian court decision or arbitral award which concludes that pandemic is not force majeure, i.e. the provision can be open for construction.

 

An official prohibition preventing the performance of the contract and a natural disaster will be considered as a force majeure. Measures taken by governments all over the world include closing businesses for a month or more- people are forced to stay-at-home. Many states have declared state of emergency to prevent day-to-day activities. Official prohibitions have restricted freedom of movement, forbade the right to assembly. Due to this, delivery of goods or services can be restricted (Note that in nations where there is reliable internet connection, people continue to work from home.) 

 

I believe that it will be difficult to reasonably foresee and predict such measures, expect the virus to spread globally with speed, anticipate governments to declare state of emergencies. Eventually, these restrictions will make a performance of an obligation impossible.  

 

In addition, under article 1793/c/, natural catastrophes are considered as a force majeure; and even though, it seems natural catastrophes are delimited to earth quake, lightning, the provision should not be construed narrowly. Unless a disease is man- made, would not it make sense to treat pandemics as natural disaster? I think it would!!

 

STAY SAFE!

Last modified on Sunday, 03 May 2020 18:49
Michael Teshome

I am a Corporate law and arbitration expert. I am very, very much fascinated by international arbitration: commercial, maritime, and investment. The more I read about arbitration, the more I want to know. I would also like to specialize on the subject matter, which I think is helpful to Ethiopia in the future. In my personal life, I like to hang out with my friends and have fun. After all, I think life is short. Moreover, I like to read books, watch movies, travel a lot, which has become recent addiction, and learn new things. I also want to learn how to make a good documentary, which I want to develop as a hobby. I also like to blog here at Abyssina Law.