Legal Ramifications of The Novel Coronavirus | OALegal

The most significant incident to impact the planet
in the last 6 months has been the outbreak of COVID19 popularly known as the
novel coronavirus. This outbreak has reinforced the need for appropriate legal
and risk management measures and systems. The pandemic which has now spread to
146 countries and counting first emerged in Wuhan, Mainland China and yet the
world would never have imagined the extent to which the outbreak would travel;
becoming classified as a global pandemic by the World Health Organisation. It
has also caused global disruption of mobility and chaos on the lives of
billions around the world as well as had considerable negative impact on macro and
microeconomics.

 The threat the novel coronavirus presents on
various industries and business sectors has been numerous and far reaching;
from significant disruptions to essential services in banking and finance to
disruption to major fixtures in the international sporting calendar from the F1
Australian Grand Prix, cancellation and postponement of a number of high
profile sporting conferences and tournaments including the much awaited Edo
Sports Festival 2020, World Football Summit Africa 2020 and a host of others.
Over 110 showpiece sporting events across Europe and Asia stand cancelled or
postponed due to the COVID-19 outbreak: affecting over 2,000 highly anticipated
match-ups across various sports like football, NBA, Eurobasketball, Mixed
Martial Arts, Golf, Tennis, Formula One and so on[1]. The
progression or otherwise of the virus in the coming days will determine whether
the Olympics event scheduled to take place this summer would go on as planned.
The world of E-sports has also seen its fair share of cancellation and
postponement of events: The Software Association’s 2020 E3 Video Game
Convention and the annual Games Developers Conference have been cancelled due
to covid-19.

Famous sporting personalities have also been
infected by the virus. Danielle Rugani and Blaise Matuidi of Juventus, Rudy
Gobert of Utah Jazz, Ezequiel Garay and five other football players in the
Valencia CF roster to mention a few. The virus has also claimed the life of
Francisco Garcia, a Spanish Football coach after a pre-existing health
condition was exacerbated by the infection- The only casualty in the sporting
world as of today.

The entertainment industry has also felt the sting
of the virus as thousands of entertainment events have been called off: Music
concerts, tours and award shows like the GidiFest scheduled for this April in
Lagos, Tribeca Film Festival, Billboard Music Awards, Glastonbury Music
Festival, Coachella, Stormzy’s ‘Heavy is the Head’ album tour, The Kid’s choice
award among others. Movie productions and Premieres of highly anticipated movies
have been put on hold; theme Parks and Amusement parks are fast shutting down
in China, Korea and other hard-hit countries[2]. Top
celebrities like Tom Hanks, Rita Wilson and Idris Elba have also been tested
positive for the virus.

Beneath this mess of cancellations and
postponements are complex commercial and sentimental interests arising out of
various entertainment and sports contracts. Performance of contracts has become
near-impossible as at when due. To be specific, Fans who have bought tickets as
well as paid travel costs and made hotel reservations with respect to a certain
concert or movie premiere will definitely be affected by its cancellation or
rescheduling. Sporting clubs would be liable for possibly breaching their
contracts with Season ticket holders who would be robbed of the spectacle paid
for in the event of a cancellation, postponement or a decision to play matches
behind closed doors.

Suffice it to say most businesses around the world
big or small will by now be affected in some way by the novel coronavirus and
that being said it is still not too late for business owners , leaders,
etc  to 
take steps to mitigate the impact or prepare to insulate itself from
shocks at best. There will be legal ramifications and risks arising from the
pandemic which all individuals and businesses will now have to seriously
consider. It is highly probable that there will be fall outs and unfortunate
contractual disputes as a consequence of the health crisis the world is
currently facing: Non-Performance being a major fall out, as the ability to
perform contracts will be severely affected and tested in the next few months
considering the stringent regulatory policies now in place. These include
widespread lock downs which has curtailed mobility whether domestically or
internationally as well as the practice of social distancing to flatten the
curve and reduce the transmission rate.

As we will come to find out; the inclusion or
otherwise of a Force Majeure Clause in sports and entertainment contracts could
prove instrumental in periods like this. So the question is what exactly is a
force majeure? And what events will give rise to a force majeure or vis major
as it is also known?

Doctrine
of Force Majeure

The doctrine of Force Majeure takes root in English
common law and applies to situations where an external event or occurrence
outside reasonable control prevents parties or a party from performance of
obligations under a contract. It is expressly provided for as a term of the
contract between parties and usually lists out a number of acts, the occurrence
of which would constitute a force majeure with respect to the contract.

In the reported Nigerian case of Diamond Bank Ltd V Ugochukwu,[3]
the court held that for a Force Majeure to occur there must be an event which
significantly changes the nature of the contractual rights of the parties that
it would be unjust to expect the parties to perform those rights such as;

–      
Where the subject matter of the
contract has been destroyed, or is no longer available.

–      
Death or incapacity of a party to a
contract

–      
The contract has become illegal to
perform as a result of new legislation.

–      
A contract can be frustrated on the
outbreak of war.

–      
Where the commercial purpose of the
contract has failed.

The provision of Force Majeure is one that has
strict application and can only be relied on based on the express provision in
the contract and the qualifying events which successfully triggers the
provision.

The applicability of Force Majeure can cover any
situation provided that the provision has been made for it.

What
type of events can give rise to a Force Majeure?

Natural events also known as ‘Act of God’ can give
rise to a Force majeure.  Actus
Dei nemini facit injuriam: interpreted literally, an act of God injures
no one. To further buttress, the maxim simply stresses that no one is
responsible for an act of God and cannot be said to have injured an adverse
party by the occurrence of such. Acts of God can include adverse weather
conditions e.g. hurricanes, thunderstorms, earthquakes. These are unexpected
events which cannot be predicted by contracting parties to a large extent, nor
prevented by them.  

As this writer has earlier mentioned, Force majeure
is a term of the contract. This means, that it must be provided for expressly
in the contract. So, it is the practice for parties to include acts or events
which would generally inhibit performance of obligations in a contract or work
hardship in the process of performing same. These events may not be Acts of God
per se, but they are abnormal incidences which are inherently unfavorable to
the terms of the contract. These include, epidemics, pandemics and other man-made
or politically related events such as riots, civil unrest and war due to
instability in a government or national leadership or other ‘Acts of
Government’.

All in all these are events that can unduly occur
out of the control of the parties making it difficult or near impossible for
the parties to fulfill a contract. Impossibility in itself is subject to
interpretation given that the circumstances that arise in the event of a
medical pandemic will be quite different from that which arises during a riot.
Whereas during war there is a total shut down of operations and clearly normal
business affairs will be non-existent in the case of a medical pandemic
business operations , meetings, etc  will
be curtailed due to non-movement and not because the parties cannot perform
necessarily

An outbreak of highly Infectious diseases such as
Covid-19, H1N1 virus and/or the Ebola virus could fall under the category of
medical pandemic or epidemic in a Force Majeure. However, to qualify as such,
its category must be included in the Force Majeure clause especially where
other acts or events are listed, so as not to be caught up by the ejusdem
generis rule. The necessary Government regulations or directives which
have been promulgated as a result of the outbreak such as social distancing,
ban on large gatherings are strong performance barriers which could bring
Covid-19 under the category of Acts of Government in the ilk of the items
mentioned earlier. Careful construction of Force Majeure clauses therefore
require equally careful consideration and need to be wide enough to accommodate
events that may not be life threatening but clearly advisable to still carry on
normal business operations.

Parties
are also at liberty to state the consequences of a Force Majeure. This could
include suspension of Contractual obligations, renegotiation of terms,
non-liability, extension of time to fulfill obligations, mitigation of losses,
and termination of contracts amongst others. Considering the effect of Covid-19
on Sports and Entertainment events, where there is a Force Majeure Clause in
the contract, parties may trigger the same. Broadcasting companies like
Supersports which holds exclusive license to broadcast a wide array of sporting
events in West Africa could reach out to the organisers and reach a favorable
decision on the strength of the Force Majeure clause, Fans who have bought
tickets could demand a refund from organisers and athletes signed up to sports
clubs may rely on the Force Majeure clause to justify why it was impossible for
them to attend trainings or partake in games for their teams which would
ordinarily represent a breach of contract. Recently, Nigeria’s ex-Skipper,
Mikel Obi ended his contract with his former club, Trabzonspor of Turkey by
mutual termination days after he criticised the Turkish FA for allowing games
to go on in the circumstances. While the specific details of termination are
not yet public, one may infer from the situation that he would only have been
able to walk away from his contract without incurring heavy cost for breach if
there were relevant Force Majeure provisions in the player contract to that
effect.

However, in the absence of express Force Majeure
provisions in a contract, parties in Common Law jurisdictions have an
alternative which is the reliance on the common law doctrine of Frustration.

Doctrine
of Frustration

The doctrine of Frustration is based on the
English common law doctrine which seeks to set aside the obligation of parties
under a contract due to unforeseen events and it can apply in the following
circumstances where there is no underlying provision for Force Majeure. The
doctrine of frustration was well propagated in the case of Taylor v Caldwell[4]
From the
decision in this case; the following elements of Frustration may be gleaned
where:

–      
External events not contemplated by
the parties arise which are beyond their control.

–      
The event was unforeseeable and it
occurred post-formation of the contract.

–      
The unforeseeable events make the
contract impossible to perform

Thus where a force majeure clause has not been
included in a contract and no risk has been allocated by such a clause in the
occurrence of stated mishaps, where an unforeseeable event occurs which may
render the contract impossible to perform, parties may rely on the doctrine of
frustration to bring an end to the contract or obtain remedy from the court
where due. An example of such an event would be where the subject matter or the
crux or the main condition of the contract ceases to exist. This was
established in the celebrated case of Henry
v Krell,[5]
where the Coronation event, which was the foundation of the contract between
the parties, was cancelled due to the unexpected sickness of the incoming king;
the Courts deemed the contract as impossible to perform due to the
non-existence of the subject matter of the contract. Thus, parties were
excluded from any future obligations arising from the contract.

Also, frustration could also occur where there is
a delay or interruption which duration is indeterminate and was unforeseen by
contracting parties. This was the decision of the Court in The Sea Angel Case.[6]
Thus, when applied to sporting and entertainment events that have been
postponed indefinitely for now, this could constitute an act of frustration of
the contract. Fans could get refunds; Insurance policies for players could be
terminated with future obligations cancelled. Footballers who are in their last
few months of contracts with their clubs – especially clubs in the top five
leagues where the season ends in the summer- could exercise the option of
canceling their contracts to the club where the season is resumed and the
matches drag beyond June 30, the final day of contracts for most players. Event
planners of concerts may have to refund all or a part of the funds received
from artists and their managements due to cancellation of events. The fallouts
are endless.

A change of law can also qualify as an
unforeseeable event can also act as an additional layer to another
unforeseeable event such as a medical pandemic, a change of law may be
temporary or long lasting and can be passed such as the temporary imposition of
travel restrictions, self-isolation measures and quarantine to name a few which
can further make the contract impossible to perform; resulting in termination
of the contract.

The consequence of invoking the doctrine of
frustration is that it brings the contract automatically to an end and either
maintains the status quo or restores the parties to the status quo ante bellum
as the justice of the case demands.  In
the event a contract is frustrated, one party will be relieved of the
obligation to perform and another who would have relied on service or goods
emanating from the contract will be left disappointed. It is ideal that both
parties reach a mutual agreement and fair conclusion however the law of damages
which is normally applicable in contract will not be applicable under
frustration due to its strict Common law background.

CONCLUSIONS

The instance of COVID-19 gives rise to a series of
unpredictable and unfortunately dynamic changing events. So far, we have
witnessed industries notably the international aviation and sports industry
take initiatives to secure the health and safety of millions which would
otherwise be compromised through gatherings and continuous mobility. This means
businesses will need to take more care when entering into any contracts from
this point onwards until the threat abates especially whilst other obligations
persist such as payment of wages, medical insurance. Adopting a cautious
approach and obtaining full legal clearance on new contracts will be highly
advisable at this point.

It is evident that in one form or another,
individuals and businesses will be affected not only directly by COVID19 but also
by the disruption emanating from it.  Practical
steps  to stem this threat include:

1. Carefully
   reviewing all existing contracts. This applies to main and sub contracts
   with third parties to determine the level of risk exposure involved and
   what performance is expected. 

2. Review
   the contracts/agreements and check if the relevant force majeure clauses
   are already in place and determine if they are couched properly.

3. During
   the intense period of social distancing and travel bans, performance of
   contracts will likely be negatively impacted. It is necessary to ascertain
   to what degree performance is affected and what remedies are available.
   Can the contractual performance be delayed or postponed? Or will it have
   to be cancelled leading to significant reliance on force majeure contracts
   in order to minimise further liabilities or losses. This activity should
   typically be handled by the legal officer within your organisation or the
   company secretary.

4.  Prompt communication of non-performance
   must be made as soon as it is clear contractual obligations cannot be
   performed by one party to the other party in the contract. This is
   necessary to mitigate losses as well as seek remedies such as refunds, etc.

5. It is
   necessary to correctly ascertain whether the event arising falls under the
   provision of Force Majeure or frustration in order to be released from
   performing obligations under existing contracts.

6. There is
   also the need to explore ADR mechanisms, especially negotiation in case of
   conflicts over performance of contracts. Parties like sports clubs and
   player unions or Sports Organisations could also commence negotiations as
   a pre-emptive measure in order to arrive at solutions for more extreme
   situations.