Contracts - Legalnaija

Can the police be used as debt recovery agents in contractual matters between parties?

by Legalnaija | Oct 10, 2017 | Uncategorized

Recently I was involved in a criminal
matter between two parties in Court. I appeared for the Defendant and my brief
was predicated on a contract that had gone sour and the Complainant getting the
Defendant arrested for “defrauding” him as he had elegantly put his case. It is
important to note that parties had entered into a contract, evidenced by a
contractual document that was tendered in court, and the IPO (Investigating
Police Officer) stated in open court during cross examination, that he
inspected the contractual document and unilaterally decided that the Defendant
had run afoul of the contractual terms.

The attitude of the Court in situations
like this is quite clear as espoused by Per Mbaba JCA in OCEANIC
SECURITIES INT. LTD VS. BALOGUN & ORS (2012) LPELR-9218(CA)

“It
has been stated many times that the police has no business in enforcement of
debt settlements or recovering of civil debts for banks or anybody. Only
recently, in the unreported decision of this Court in the case of IBIYEYE &
ANOR VS GOLD & ORS, APPEAL NO_ CA/IL/M.95/2010, delivered on 7/12/2011, I
had cause to scream thus, in my contributory judgment. “I have to add that the
resort to the police by parties for recovery of debts outstanding under
contractual relationship, has been repeatedly deprecated by the Court. The
police have also been condemned and rebuked, several parties, and for using its
coercive powers to breach citizens right and or/promote illegalities and
oppression. Unfortunately, dispute, all the decided cases on this issue, the
problem persists and the unholy alliance between aggrieved
contractors/creditors with the police remains at the root of many fundamental
right breaches in our Courts”

The police have no business using their
coercive powers to deal in matters of contractual nature between parties. In
fact, it was held in another matter before the Court of AppealANOGWIE &
ORS VS. ODOM & ORS (20160 LPELR-40214 (CA), where My Lords were more
forceful with their judgment that

“…the
invitation of the police to intervene in a matter that is purely civil in
nature CANNOT BE JUSTIFIED UNDER ANY CIRCUMSTANCES. The duties of the Police as
provided under Section 4 of the POLICE ACT, Cap 359 LFN 1990 does not include
the settlement of civil disputes or the collection of debts or the ENFORCEMENT
OF CIVIL AGREEMENTS BETWEEN PARTIES . See the case of MCLARENCE VS. JENNINGS
(2003) 3 NWLR (Pt. 808) 470. The mere fact that the police are invited into
just about every matter under the sun is no justification to get the police involved
in the resolution of civil disputes. The police has recently held itself out as
a responsible law enforcement organization and should be seen to live up to its
billings in quickly turning down matters not statutorily assigned to it so as
to avoid embarrassments of matters of this nature happening. There are usually
dire consequences at every turn of event in the event of things of this nature
happening. The position is and has always been that the private individual who
uses the police to settle a private score, would himself be liable for the
wrongful act of the police. See the case of NKPA VS. NKUME (2001) 6 NWLR (pt.
710) 543 and a host of other decided cases on the subject”

The Police derive their powers from section
4 of the Police Act, Cap 359 LFN 1990. This section states the Jurisdiction of
the police and being used as debt recovery agents, being involved in purely
civil matters or being used to resolve civil disputes has no basis in law
as by so doing, the police would have acted ultra vires. It is disheartening to
note many people; even Lawyers still use the police to hound people for purely
civil transactions that might have gone sour. As stated by My Lords in OCEANIC
SECURITIES INT. LTD VS. BALOGUN & ORS (Supra), this act leads to
many fundamental human rights breaches against individuals. Many times, the
police, using their coercive and physical presence force victims into making
undertakings promising to pay the debt at an agreed date. They threaten with
imprisonment and they harass the victims into agreeing to these undertakings
which have no basis in law.

The Courts have taken a very radical
approach to this problem as they have stated in numerous cases that the victims
can institute an action against the errant officer and the private individual
who used the police to settle a private score as he too would be liable for the
wrongful act of the police.

So in answer to the topic question, the
police cannot and should not be used as debt recovery agents nor should they be
used in purely civil matters as the act is ultra vires.

Abiola Lawal Esq.

F.B.A Nabena & Co

Source: Linkedin

The Enforceability of Non-Compete Clauses/Agreements under Nigerian Labour Law

by Legalnaija | Nov 25, 2016 | Uncategorized

Entrepreneurs often dread losing key staff. The difficulty
involved in having to recruit and successfully integrate new faces into an
existing order makes the endeavour an unsavoury undertaking to many. However,
if losing a key staff is worrisome enough, the realization that a disgruntled one
may walk out the door with more than his termination letter and severance
paycheck, is a much graver cause for concern.

Daily, employers are faced with
the unfortunate reality that a departing employee may leave to go work with a
competitor, poach their long term clients or utilize skills, confidential
information and trade secrets acquired during the subsistence of their
employment to secure new jobs. This apprehension has prompted many an employer
to have prospective employees sign non-compete agreements as a prerequisite for
working for them.

A non-compete agreement also referred to as
“covenant not to compete” or a “contract in restraint of trade” is an agreement
wherein an employee consents not to engage in a similar occupation or disseminate
trade secrets that is likely to occasion damage or compete against the business
of his employer. It is a commercial contrivance which seeks to preclude
insiders from taking trade secrets, business affiliations or clientele to other
corporations or employers when they leave.

A non-compete agreement may either
be a major clause in an employment agreement or a separate agreement, the
execution of which is a condition precedent to employment. Which form it takes,
the same effect is had. The agreement generally restricts an employee from
entering into a similar engagement for a specific period of time or within a
certain geographical location. This restriction is usually dual-pronged. One
operates during the subsistence of employment. The other transcends employment
and continues to operate after its determination. An effective non-compete
agreement seeks to achieve the following:

Prohibit a
former employer employee from working with a competitor
Prohibit a
former employee from soliciting former co-workers to be employee in his or her
new company
Prohibit a
former employee from soliciting or disclosing confidential information such as
customer lists, price lists, market strategies or other proprietary information

Generally, for a non-compete agreement to be considered
valid, it must have the following elements amongst others:

Be supported
by consideration
Be reasonable
in scope of the duration and geographic boundaries
Protect a
legitimate business interest

In spite of the presence of the above essentials in
a standard non-compete agreement however, the real test of validity is whether the
agreement is in itself enforceable or not. This is because having an employee
append his signature to a non-compete agreement and being subsequently able to
enforce it are two different things entirely. While it is a trite principle of
law that the court will not hesitate to enforce the terms of a mutually
consensual contract and parties will be precluded from refuting their claims
and liabilities under such, a non-compete clause which prime facie appears meticulously crafted may be unable to withstand
the objective scrutiny of the court.

Therefore, as tempting as it is for an employer
to draft an expansive, seemingly iron clad agreement, concerted regard should
be had to the likelihood of the agreement’s chances at withstanding the test of
validity and enforceability. Generally, the courts frown at restraint of trade
and are exceedingly wary of clauses that restrict an employee’s chances to
future employment. This modern law principle against restraint of trade was
laid down in the locus classicus Nordenfelt v Maxim Nordenfelt (1894) A.C 535; (1891 – 4) ALL ER
Re. 1.111) where the court held that all clauses in restraint of trade
are contrary to public policy and as such, void ab initio save only there
are special circumstances which justify them.

Nevertheless, the right of an
employer to the protection of his confidential trade secrets and business is fairly
recognized. Hence, the court may be inclined to enforce the agreement if
evidence is sufficiently led to show that it is reasonable in scope, nature and
extent and regard is had to the interest of the parties and the general public.
In Koumoulis
v A.G. Leventis Motors Ltd (1973) All N.L.R. 789, the court observed
that:

“The covenant, the subject of the complaint was
reasonably necessary for the protection of the business interest of the
respondent and was therefore valid and enforceable in law”.

It should however be noted that an employer will
not be afforded the protection of an expansive non-compete clause to shield
himself from healthy business competition by a former employee.

Another
determinant factor of enforceability of non-compete agreements is its
geographical scope. Where the contemplation of the agreement is an expanse of
area too wide to be adjudged reasonable, the court will refuse to enforce it,
with the consent of the employee notwithstanding. This principle is notably
consistent in all jurisdictions and was sufficiently highlighted in the
decision of the court in John Holt & Co (Liverpool) Ltd v
Chalmers (1918) 3 NLR 77.

While a court may alter an unreasonable term or
terms of a non-compete agreement, it also reserves the power to invalidate the agreement in totality if
it is reasonably satisfied that the employer intentionally included overly
broad language that renders it unreasonable and oppressive. In Mesop
Kholopikiaan v Metal Furniture Nigeria Ltd {(unreported) HCL, Ikeja Judicial
Division, Suit No IK/180/69 delivered on 5^th March 1974)}, a
non compete clause which covered a radius of 800 miles from Ikeja, Lagos where
the defendant was based was held unreasonable and therefore void for it does
not only span the whole of Nigeria but extends into some neighboring west
African states.

As an additional test of enforceability, the
court may take into account the nature of the information had and the knowledge
acquired by the employee. N.M Selwyn, the renowned author on labour law texts
is of the opinion that a distinction should be drawn between subjective and
objective knowledge. According to him, objective knowledge comprises trade
secrets, list of customers etc, all which comprise the employer’s property and
therefore merits protection from infringement. Subjective knowledge on the hand
entails the general knowledge of the trade and industry and organizational
ability acquired by the employee during the subsistence of his employment, the
restraint of which would be unfair. In Herbert Moris Ltd v Saxelby (1916) 1 AC 688),
a 7 year non compete clause precluding an engineer from taking up employment
with an competitor after the determination of his employment was voided on the
ground that it was a restraint on his technical skill and knowledge which was
acquired by virtue of his industry, observation and intelligence.

Duration may also play a significant role in the
determination of enforceability. A non-compete clause which is couched to
restrict trade for a lengthy period may, if considered alongside other relevant
circumstances, be adjudged an unreasonable cloak against competition. In M
& S Drapers V Reynold (1956) 3 All ER 814, a restraint on a
collector’s saleman of a drapery firm not to solicit his employer’s clients for
five years was voided on the ground that the restraint was too long in view of his
humble position in the company. Similarly, in Esso Petroleum Ltd v Harper’s
Garage (Stourport) Ltd (1967) UKHL 1, the court voided a twenty year
restraint imposed on a petrol station owner under a solus agreement for being too unreasonably lengthy. It should
however be noted that each case ought to be treated on its merit, as the length
of the restraint is considered alongside other extenuating factors including
but not limited to the employer’s business and the position of the employee in
the company. The courts have held that a lengthy restraint on an employee’s
trade would not ordinarily be voided if it is revealed by the circumstances of
the case that that the restraint is necessary for the reasonable protection of
the employer’s proprietary interests.

CONCLUSION

Intellectual property is indubitably one of the
most invaluable assets in the intricate web that is the global business sphere,
largely because of the time and resources expended in its contrivance. Hence
the need to safeguard proprietary interest in trade secrets and confidential
information from abuse by insiders becomes even more apparent by the day. This is
why it is almost impossible to see a contemporary contract of employment devoid
of a non-compete or confidentiality clause. Fortunately, a non-compete
agreement, if painstakingly drafted, can obviate the dangers which it seeks to
circumvent. However, a small oversight can effectively vitiate a part or the entirety
of the agreement to the detriment of the employer and the benefit of the
employee and vice versa. Thus, it is suggested that when drafting a non-compete
agreement, strict regard should be had to its scope, duration and enforceability.
The agreement should be tailored to match the business and employee in
contemplation and caution should be exercised in the reckless use of templates
that are lifted verbatim from the internet. Better still, it would be prudent
of an employer to outsource the drafting of non-compete agreements to a
competent attorney who is adequately versed in the art of corporate commercial
legal drafting and handling contractual matters to ensure that the agreement is
apposite, reasonable and fair.

LIST
OF AUTHORITIES

·
Esso Petroleum
Ltd v Harper’s Garage (Stourport) Ltd (1967) UKHL 1 John Holt & Co
(Liverpool) Ltd v Chalmers (1918) 3 NLR 77

·
Fitch v. Dewes
(1921) 2 AC 158

·
Herber Moris
Ltd v. Saxelby (1916) 1 AC 688.

·
International
Journal of Advanced Legal Studies and Governance, Vol 4, No 2, August 2013

·
John Holt
& Co (Liverpool) Ltd v Chalmers (1918) 3 NLR 77

·
Koumoulis v
A.G. Leventis Motors Ltd (1973) All N.L.R. 789,

·
M & S
Drapers V Reynold (1956) 3 All ER 814

·
Mesop
Kholopikiaan v Metal Furniture Nigeria Ltd {(unreported) HCL, Ikeja Judicial
Division, Suit No IK/180/69 delivered on 5^th March 1974)},

·
N.M. Selwyn,
Law of Employment 3rd ed. (London, Butterworths, 1980) Pp. 282-3

·
Nodenfelt v
Maxim Nordenfelt (1894) A.C 535; (1891 – 4) ALL ER Re. 1.111)

·
The Validity
of the Doctrine of Restraint of Trade under the Nigerian Labour Law – Uko, E.J.

Temitayo Ogunmokun Esq.

Temitayo
Ogunmokun is legal practitioner based in Lagos, Nigeria. His areas of practice
include corporate commercial law, energy, taxation and international adoptions.
He presently works at a commercial law firm in Victoria Island, Lagos. He is a
volunteer legal adviser for the Literacy Integration and Formal Education (LIFE),
an NGO specialized in international adoptions and a published fictional writer
and poet.

Photo Credit – www.quora.com

Ivie Omoregie: The Importance of Contracts;Especially When Dealing with Friends

by Legalnaija | Oct 11, 2016 | Uncategorized

The importance of
contracts

Over the years, in my
professional capacity, as well as in my personal life, I have seen extremely
ugly disputes erupt amongst people who would have once referred to themselves
as close friends or family; all because they attempted to do business or engage
in a project together which subsequently went pear shaped. I often tell people
‘even if you are going into business with your mum, make sure you sign
something setting out, in clear terms, exactly what is expected from each party’.

The importance of formally
documenting proposed business obligations cannot be over stated. Some people
believe it might be insulting to the other party if seemingly out of nowhere
they bring a document for that party to review and sign; but I always stress
that prevention is better than cure, and in most instances, to actually save a
friendship one has to be objective and follow due process. If you were
doing business with a stranger, you would certainly mandate that the two of you
sign something to show each-others clear intentions…. So why should this change
because you are dealing with your “best friend”.

The Principals Behind
Legally Binding Contracts

The foundations of legally
binding contracts are premised on intention, an offer, acceptance of that offer
and valid consideration. Each party to a contract acquires rights and duties
relative to the rights and duties of the other parties.

Key elements for the
formation of a legal contract include: –

a. Intention
– all parties must have intended to create relations by entering into the
contract;

b. Offer
– there must be a valid, definite and clearly stated offer to do something;

c. Acceptance
– this must be unequivocal and unconditional, and must be in accordance with
the terms of the initial offer; and

d. Consideration
– this may be in any form accepted by both parties, aside from a monetary
consideration, it can also take the form of physical objects, promised actions,
services, absence from future actions and the list goes on.

The general position of
legal authorities is that any contract is legally binding and enforceable where
the parties to the contract, at the time of entering into the contract, had the
intention to be bound to the terms of the contract. All courts around the world
appreciate that the sole objective of a legal contract is to define the
agreement that the parties have consented to enter into, thus fixing their
rights, duties and obligations in-line with what has been clearly set out in
the contract. There is no legal body empowered to enforce the terms of a
contract which does not exist.

Capacity to Contract

In saying this, I must
stress that there are instances where a party to a contract may be deemed as
lacking the capacity to enter into the contract, thus the contract regarded as
unenforceable where some laws which relate to that nature of person are not
duly complied with.

These persons include: –

a. An
Illiterate – this is generally a person who cannot read or write in the
language in which the contract has been executed;

b. An
Infant – this is persons under the age of 21 (with an exception being
contracts for the sale of goods)

c. A
Lunatic or Person of Unsound Mind – however
in these instances, a contract entered into with a lunatic at lucid intervals
is valid (here the test for determining whether someone is a lunatic is not
quite clear under Nigerian law, as we often see “many are mad but few are
raving”)

d. A
Drunkard – again the test for differentiating a drunkard from someone
who likes to drink often is somewhat grey, however where it can be proved that
the drunkard was sober at the time of entering into the contract then the
contract would be binding.

Parties to a contract are
bound by the terms of that contract, even in instances where the terms are more
favorable to of the parties; as long as the contract is not the result of
duress, undue influence or fraud, it is not the duty of the courts to determine
the business viability of the contract terms.

Key Clauses

I must empathize that the
contract does not have to perfectly drafted to be binding, although advise from
a professional would always be a best case scenario, in the event that this is
not possible, parties may simply google the applicable template and adapt to
suit their needs, or write out some pivotal points on a sheet of paper and
sign.

The following are some
vital clauses I would advised to be included in every contract: –

1. Commencement
Date – this is the date upon which the contract will be deemed as validly
existing;

2. Parties
– here you list the names and addresses of the parties to the contract, where
any of the parties is a company, one may also include the company registration
number, and the country in which the company was registered;

3. Recital
– this is a clause which details briefly the facts surrounding the transaction,
and may be narrative or introductory by nature. For example, in a contract for
the sale of goods it would be narrative and would tend to specifically state how
the seller came about possession of the goods;

4. Consideration
clause – as titled, this clause details the consideration for the transaction;

5. Receipt
clause – here the party receiving the consideration accepts receipt of same, or
where the consideration is not of a tangible nature confirms acceptance of
whatever consideration has been proposed;

6. Capacity
– this clause confirms the party’s capacity to enter into the contract;

7. Termination
clause – this usually details what constitutes a significant breach or several
events which could lead to termination if not rectified within a specified
period of time;

8. Choice
of law clause – this clause details which laws will govern the contract, there
must be a rational reason for the choice of law specified, as the laws of
different jurisdictions may affect the parties differently;

9. Alternative
dispute resolution clause – this clause creates an obligation for the parties
to submit their dispute to any of the alternative dispute resolution options.
It may also detail a course of actions both parties need to take in order to
rectify any possible discrepancies; and

10. Signature
– parties should bear in mind the signatory requirements of a company.

Conclusion

The truth is, there are
several multi billion naira industries, which have been successfully operating
in Nigeria over several decades, established by a simple gentleman’s handshake.
Many people believe that in an attempt to be over diligent one can end up over
complicating the matter and set the foundation for distrust; akin to getting a
prenup before entering into a marriage.

Many people, especially in
the Nigerian jurisdiction, because of the difficulties experienced or the
tedious nature of the litigation procedure, believe that most contracts are not
worth the paper they are written on. They believe that in most instances when
one or more of the parties involved purposely and disrespectfully rescinds on
their contractual obligations, little to nothing can be done to immediately
rectify the situation. The truth is the Nigerian court system is over
saturated, with final judgment often taking several years from the date of the
initial application. However, where the dispute is amongst related parties, any
mutual friend may intervene and give their objective interpretation of the
terms of the contract.

Ivie is a commercial lawyer, with experience and keen
interest in projects and transactions work within the Sub Saharan African region.
She is called to practice in England and Wales and Nigeria.

Ed’s Note – This article was originally published here.

What you should know before signing a contract (Part 2)

by Legalnaija | Aug 2, 2016 | Uncategorized

This is the 2^nd
post in a series of articles on contract. The first article defined contracts
while this post will be examining the terms and contents of contracts.

Terms of contracts can be
described as the rights and obligations of parties under the contract. For
instance, under a tenancy agreement, a term of the contract is for the tenant
to pay rent, another term is for the landlord to deliver the premises in
tenable condition.

A term of contract may be
express. i.e. written out expressly in the contract while others may be
implied. i.e. it can be read into a contract though it is not expressly written
out in the contract. For instance under a contract to supply frozen chicken, it
is usually an express term to state the number of cartons of chicken the buyer
requires, however it may be implied into the contract that the seller must
deliver them in good condition, probably in a cooling van in other to keep them
in good condition and not with the cartons dripping with murky defrosted water
and chicken pieces falling out of the cartons.

No matter what the
contract is for, either a contract to merge companies, buy a property, a
recording contract or a contract of employment. Understanding what terms are express
and those that can be implied into a contract is essential for all parties. As everyone
must know and understand their respective duties and obligations under the contract.
Failure to do this may result in conflict later on, if a party is seeking to
enforce a perceived right under the contract but the other party claims being
not obligated for that right. This may help save you and/or your company from
unwarranted liability.

With regard to liability,
it is also important to identify if the alleged obligation is an actual term of
the contract or a mere representation. Also, if it can be implied into the contract.

The fact that parties must
fully understand the terms of their contract is further expressed by the
Nigerian Supreme Court in Best (Nigeria) Limited v. Blackwood Hodge
(Nigeria) Limited & 2 Ors (2011) 1 -2 SC (Pt I) 55, where the court
held that –

“A
contract ought to be strictly construed in the light of the essential and material
terms agreed by parties. The court should not allow a party to dribble the
other party”.

It is recommended that
before you sign an agreement, you evaluate if the terms constitute a valid
contract and all parties are clear of their respective duties and obligations
under the contract. Also, do not hesitate to seek counsel from a legal
practitioner if you need to.

Dunmade Onibokun Esq.

Principal
Partner

Adedunmade
Onibokun & Co.

info@adedunmadeonibokun.com

dunmadeo@yahoo.com

www.adedunmadeonibokun.com

+2349095635314

Dunmade’s legal practice
focuses on corporate and commercial law, regulatory compliance, due diligence,
corporate advice and commercial transactions.
He is the Principal partner of Adedunmade Onibokun & Co. Dunmade is
also a blogger and publishes the Legalnaija Blawg via www.legalnaija.com

What you should know before signing a contract (Part 1)

by Legalnaija | Jul 4, 2016 | Uncategorized

This is the first post from
a series of articles on Contracts; other articles will follow as the weeks
progress.

A contract is defined by
L.B Curzon’s “A Dictionary of Law” to be a legally binding agreement. In other
words, it is an agreement between 2 or more parties which the law/court will
honour. For instance, a building contract, an employment contract or a loan
agreement and so on.

For a contract to be recognized
by law, it must have been entered freely and voluntarily i.e. there must have
been no form of undue influence while negotiating the contract. For instance,
an agreement for the sale of an hotel when the seller is held at gun point by the
buyer will not be recognized by law if such circumstances are brought to the
knowledge of the court.

Contracts can be in
different forms depending on the nature of the agreement. For example,
contracts for the sale of land are “contracts under seal” and can also be
called deeds. Such contracts are usually required to be in writing, signed, sealed
and delivered. Simple contracts on the other hand include oral contracts and
contracts which include some little writing. Implied contracts arise from the
assumed intentions of the parties. While, contracts of record, arise from
obligations imposed by a court’s decision.

A contract evolves in
stages beginning from the offer to the acceptance of that offer and finally to its
execution/ termination. These stages must be supported by consensus among the
parties; a genuine intention to enter contractual relations; valuable
consideration and the legal capacity of the parties to enter into the
agreement.

Please note, that illegal
contracts will not be recognized by law. This means any contract that involves
any illegality will not be honoured by the courts. As an illustration, in
Nigeria, an agreement to buy or sell stolen property will not be recognized by
law because dealing in stolen property is in itself a crime and an illegality.

Dunmade Onibokun Esq.

+2349095635314

dunmadeo@yahoo.com

Adedunmade’s legal
practice focuses on corporate and commercial law, regulatory compliance, due
diligence, corporate advice and commercial transactions. He is the Managing Partner of Adedunmade
Onibokun & Co.

EBOLA OUTBREAK: IS IT A FORCE MAJEURE EVENT?

by Legalnaija | Aug 21, 2014 | Uncategorized

On 8 August 2014 the World Health Organisation
(WHO) categorised the Ebola outbreak in Guinea, Sierra Leone and Liberia as a
Public Health Emergency of International Concern.

The potential impact of this epidemic is of interest to all
multinational corporations with a presence in Africa, and in particular to
those with projects, assets and personnel in those countries affected. The fact
that the WHO has only twice previously described an outbreak in these terms
underlies the severity of its impact, and potential impact, on construction
projects in West Africa.

On the date of the WHO’s announcement, a leading steel producer published
a press release noting that contractors undertaking expansion works at its
mines in Liberia had declared the outbreak a force majeure event and were
moving personnel out of the country. The company noted that it was assessing
the potential impact on the project schedule. This assessment will no doubt
involve a review of its key contracts and the impact of the outbreak on
completion dates and cost. A number of airlines have also cancelled flights to
West Africa, and several mining companies have cut back on nonessential travel
to the region.

Multinational
companies with interests in West Africa are implementing measures in order to
manage the impact on their businesses in the region and beyond. Our clients are
assessing potential exposure to the consequences of this outbreak and we
highlight below two critical contractual issues that parties must be aware of
in responding to this crisis.

Force majeure

There is no English common law doctrine of force majeure. Force
majeure is a principle borrowed from the French civil code, whereby a party
will not be liable for its failure to perform an obligation where this failure
has been caused by the occurrence of exceptional events outside that party’s
control. If there is no force majeure provision in your contract, you will need
to consider other remedies.

It follows that employers and contractors faced with a real or
potential impact from the Ebola outbreak will be asking themselves two high
level questions: 1) Does this event fit within the definition set out in my
particular contract or contracts?; and 2) Has (or will) the outbreak, as a
matter of fact, impacted (or will it impact) upon my performance or that of my
counterparty under the relevant agreement?

Interpretation of force majeure clauses

As noted
above, the English courts have been reluctant to set out a precise meaning of
the term ‘force majeure’. It follows that where the term is used in a contract;
the ordinary rules of contract interpretation are applicable, such that each
case will be different and turn on the particular words used in the contract.

This English law approach is different to civil law jurisdictions
in which the civil codes prescribe definitions of what is meant by force
majeure. As a result, English law construction/engineering contracts typically
contain an express definition of the phrase to avoid, insofar as it may be
possible, uncertainty and the potential for disputes.

Given the wide use of the FIDIC forms in international
construction projects, it is instructive to consider whether the Ebola outbreak
could be considered a force majeure event within the meaning of the relevant
FIDIC clause, and whether the outbreak would give rise to an entitlement for
additional time or money.

By way of example, Clause 19.1 of the FIDIC Red Book sets out a
broad definition of a force majeure event as

“…an exceptional event or circumstance:

a) which is beyond a Party’s control,

b) which such Party could not reasonably have provided against
before entering into the Contract,

c) which, having arisen, such Party could not reasonably have
avoided or overcome, and

d) which is not substantially attributable to the other Party.”

Provided an event satisfies the above conditions, then under FIDIC
it is a force majeure event (if Clause 19.1 is read in isolation).

The FIDIC Red Book then goes on to set out a non-exhaustive list
categories of examples for force majeure events, including war, rebellion,
riot, and natural catastrophes (such as earthquake, hurricane, typhoon or
volcanic activity).

Clause 19.1 does not expressly reference an epidemic as a force
majeure event (some forms of contract do), though that does not prevent it
being such an event. The critical question to determine whether or not an Ebola
outbreak is a force majeure event, is whether the four criteria set out above
have been satisfied.

There can
be little doubt that the Ebola outbreak is an event which is exceptional;
outside the control of commercial parties to a construction contract; could not
have been avoided/overcome once it arose; and is not substantially attributable
to either party. It would also be difficult to argue that a party to a
construction contract could have provided against the risk of an Ebola outbreak
before entering into the contract (though query whether or not such an outbreak
was foreseeable).

Entitlement to a force majeure event may well be very different in
circumstances where the relevant clause includes a requirement that the event
be unforeseeable (the FIDIC example does not). The element of foreseeability is
incorporated in Article 1148 of the French Civil Code, which stipulates that a
force majeure event must be unforeseeable, render performance impossible and be
outside of the control of the party invoking suspension of the relevant
contractual obligation. This is a higher threshold than that in FIDIC and we
have seen agreements where parties have agreed to allocate risk in this way.
Given that, in recent history and in certain parts of West Africa, there have
been Ebola outbreaks, albeit occasional and confined and not necessarily in the
countries currently affected, an Ebola outbreak may fall foul of a force
majeure provision that will not bite where an event is foreseeable.

In any event, under the FIDIC Red Book, a contractor would almost
certainly be entitled to obtain an extension of time in cases where it can
demonstrate delay affecting completion. This would, of course, be subject to
the time bar provisions found in Clause 19.2 relating to notice.

The question of an entitlement to additional cost (remembering
that cost is defined so as to exclude profit in FIDIC RED Book) arising from a
force majeure event is more complex. Clause 19.4 makes a distinction between
different kinds of force majeure events and where they occur. In fact, the
entitlement to cost refers back to the categories of force majeure events
listed in Clause 19.1. For example, an entitlement to additional cost will
accrue in the event that war and/or hostilities in a neighbouring country (or
indeed anywhere) effect the progress of the works. In contrast the balance of
the ‘categories’ of events listed in Clause 19.1 must occur in the country of
the works so as to qualify as a relief event and give rise to an entitlement to
costs.

An Ebola epidemic does not sit well in any of the categories
listed in Clause 19.1, thus creating an uncertainty in the drafting. Is there
an entitlement to an extension of time but no money? Further, if parties are
undertaking projects in adjoining countries, even if they are proximate to the
sites of the Ebola epidemic, does that preclude entitlement to cost?

Whilst the
drafting is unclear on this issue and there is no case-law on epidemics that
would provide useful guidance, the best interpretation of the contract when
read as a whole must be that there is an entitlement to an extension of time,
but not necessarily any cost.

Frustration – A Brief Refresher

Parties to contracts without an express risk allocation for
force-majeure-type events may need to consider alternative routes through which
to escape sanction/obtain relief. In such circumstances the English common law
doctrine of frustration may be invoked to provide some level of protection to
the party who would otherwise be in default.

A contract will be frustrated only in very limited circumstances,
where, for reasons attributable to none of the relevant parties, performance
has become impossible, illegal or would be totally different to what was
contemplated by the parties when the contract was formed.

It is difficult to imagine a scenario where it might be said that
the effects of the Ebola outbreak could not be mitigated through alternative
methods of performance (for example, procurement of raw materials from
alternate countries/sources unaffected by the outbreak, imposition of stringent
quarantine and medical controls and different techniques and policies to
protect the health and well-being of personnel on site). The English courts
have made it very clear that parties will not be entitled to relief from
performance for frustration merely when performance is rendered more difficult,
time-consuming or expensive.

Conclusion: The Contractual
Consequences of Ebola

In summary, the rights and obligations of employers and
contractors undertaking construction projects in West Africa will be determined
by a close reading of the provisions of the relevant contracts (and employing
modern means of interpreting contracts holistically). In many circumstances, we
consider it will be at least arguable that where an outbreak of Ebola has a
demonstrable effect on the progress of a project, it will qualify as a force
majeure event giving rise to an entitlement for time and/or monetary relief,
depending on the express terms of the relevant contract. It may also be the case
that in some civil law jurisdictions parties will be entitled to rely on the
provisions of the civil code in that country to obtain relief.

As the
leader of the Eversheds Africa Law Institute network, and with a presence in 32
African jurisdictions, including Liberia and Sierra Leone, Eversheds is
uniquely placed to assist construction clients across the region.

By: Paul Giles

Partner,
Eversheds LLP

0845 497 8680

paulgiles@eversheds.com

Julian Berenholtz

Senior
Associate, Eversheds LLP

0845 497 0767

julianberenholtz@eversheds.com

Source:
legalweeklaw.com