A Chat with Oyetola Muyiwa Atoyebi, SAN on possible subject matters that will become issues following the COVID-19 outbreak.

A Chat

With Oyetola Muyiwa Atoyebi, SAN on possible subject matters that will become issues following the COVID-19 outbreak.

Introduction

With the outbreak of the Corona Virus (COVID-19) in December, 2019, in Wuhan, China, which started as an epidemic before it was confirmed a pandemic in 2020, by the World Health Organization, the world today never envisaged the damage this pandemic would cause and how hard it will hit major economies. Up to this present moment, with over 1,000,000 cases in at least 180 countries which are being affected by this outbreak, some have seen this as a natural disaster, others as negligence on the part of humans, while some have even called it ‘an act of God’. Regardless of these assertions, the impact across various sectors and economies are starting to be felt immensely. Although there is an urgent need to find a lasting solution to this outbreak, things are being put in place to reduce the spread and death rate caused by the virus. Doubtless, this pandemic can be said to have a resultant effect across various industries including finance and investments, insurance, logistic, mining and even agriculture amongst others. Also, Legal issues ranging from Financial and Contractual Obligations, Intellectual Property, Trademark and Commercial disputes have equally been greatly affected. This paper aims to educate readers within and outside the legal industry while answering questions which are likely to become issues following the outbreak of COVID-19.

QUestions & Answers

How possible is it for companies with financial obligations to fulfill their obligations within the agreed time?

Commercial transactions have acquired various forms over the course of time. Trade primitively started with barter system; where goods and services are exchanged without money. It required physical presence for it to be performed. It gradually advanced to goods being exchanged for money, and still requiring the physical presence of the parties. Now, some commercial transactions can be performed on the internet without requiring physical presence.

The impact of covid-19 on the ability of companies to meet their financial obligations, depends on the nature of their business. Companies whose business deal with physical transactions will find it very difficult to keep up with their financial obligations because of social distancing, lockdown and other measures set up by various governments to contain the spread. In fact, even some online companies will be affected by the pandemic. Online companies that do not provide the final services but serve as agents will also be affected. For instance, companies that help with booking flight tickets and hotels accommodation will be affected. The online companies whose service is the end product can still meet up their financial obligations by adopting the work from home methods. In fact, because the companies have lesser competitors, they are likely to make more profits. Examples of such businesses in Nigeria are Paystack and Irokotv.

In conclusion, the pandemic will affect the ability of companies to fulfill financial obligations in terms of repayment of loans within the stated time frame. However, this will depend on the nature of the services provided by that company.

What measures should be taken if a company is unable to supply its customers with goods/services that has been ordered for due to the Covid-19 outbreak?

A company that is unable to meet up with orders made by the customers because of the covid-19 can take some or all of the following steps;

Inform the customers immediately of the impossibility of performing their obligations; stating the reasons and proposing time within which they can perform their obligations.
Ask for further instructions from the customers.
Take reasonable steps to protect the quality and state of the product; especially when the product is perishable.
The company can take measures to mitigate the loss; especially when time is of essence and the contractual obligation cannot be performed after the pandemic.
Propose a refund if it is time bound and the company has not taken any step towards fulfilling its obligation
Discuss an amendment to the original contract; where a formal one was drawn. If otherwise, reduce the new agreements in writing.

It is germane, to state here that failure on the part of the company to make recourse to any of the foregoing alternatives or devise a more workable option, will ultimately lead to a breach on their part and the law has imposed on them a bounden duty to mitigate loss arising from such breach. A judicial authority in this context is the case of CONOIL PLC V. SOLOMON (2017) 3 NWLR pt. 1551 where it was held:

“The law imposed on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps”.

Can an employer terminate employment due to the Coronavirus outbreak?

Generally, Nigerian employers are allowed to terminate a contract of employment at any time and are not necessarily required to state reasons or show cause for doing so; on the condition that the relevant notice of termination is given to the employee by the statutory requirement contained in Section 9(7)(c) of the Labour Act, Cap. L1 Laws of the Federation of Nigeria, 2004, which provides among other things that a contract (of employment) shall be terminated by notice in accordance with section 11 of this Act or in any other way in which a contract is legally terminable or held to be terminated. Therefore, under the current circumstances, if due to economic reasons resulting from the Coronavirus outbreak employers are unable to pay their workers or employees. Their services are no longer required. Therefore, termination of contract is a valid option available to the employer provided it is done in compliance with the terms of the employment contract. Alternatives available to employers under the current circumstances may include;

Reduction of Employees pay
Unpaid Leave

What steps should borrowers and lenders take if financial or other covenant breaches are anticipated due to Covid-19?

The disruption caused by the coronavirus disease has great implications for the financial sector. Firstly, the decline in oil prices, and subsequent decline in capital market performances means that a lot of businesses, especially those which invest in the capital market could be faced with huge loses. The implication of this will be the inability of such businesses to fulfil their financial obligations. Furthermore, due to the shutdown of businesses resulting in decline in earnings, loans and debts may become more difficult, if not impossible to finance.

Also, considering the high level of uncertainty we are faced with, it is impossible to determine how long it will take for businesses to get back on their feet, thus, preparations should be made for amendments, discussions centered on liquidity issues, covenant breaches and re-negotiation of terms of repayment. In view of this, both lenders and borrowers are encouraged to seek proper legal services.

How does COVID-19 affect “Time of the Essence” Clauses in Contracts?

Generally, time is not of the essence in contracts. However, there are certain instances where time would be of the essence; an example of this would be, where agreement expressly states that time is of the essence. This is achieved by the insertion of the Time of the Essence Clause (TOE) in those Contracts. A TOE is a term contained in a contract which specifies that a certain time or date is of great import. In effect, it provides that ‘the times and dates specified in the agreement are vital and mandatory to the contract. Any delay or an outright failure to keep to the time as such might be grounds for cancelling the contract.

TOE clauses are employed in situations where performing a duty or rendering a service after a certain date would render the performance useless or less valuable. It is not uncommon to find a TOE in Contracts for the sale of perishable goods, construction contracts, rush or express service contracts, contracts involving an important release or publishing date, amongst others.

The TOE clause is very important for contracts where time would be considered “of essence”. This is because unless it is explicitly stated, time is not of the essence in contracts. This would make it impossible to hold parties responsible for delays since it is not the duty of the court to make a contract for the parties. Although, in determining whether a contract contains a TOE clause, the Court will usually analyze several factors in a bid to effectuate the intention of the parties. If a contract contains a valid TOE clause, it must be followed strictly. As to the effect of time being of essence, the Court of Appeal have had cause to dissect it in the case of LADGROUP LTD. V. F.B.N PLC (2017) 12 NWLR pt.1580 where it held that:

“Where time is of essence in a commercial or mercantile transaction, unless time is waived by the parties, the parties concerned with the transaction must keep to or obey the timeline.”

A failure to perform at the stipulated time will put the defaulting party in breach of contract and entitles the innocent party to repudiate the contract and claim damages. The defaulting party may also be held liable for losses incurred by the delay.

In spite of the foregoing, the defaulting party may be able to escape liability if he has made reasonable efforts to perform his contractual duties to the best of his capabilities. He will usually not be held liable for losses due to a delay that was beyond his control.

The recent outbreak of Corona Virus all over the world, and more particularly, its intrusion into the Nigerian terrain has brought business as usual to a standstill; especially with the Lockdown Directive recently issued by the Federal Government which many state governments are following suit. It is not surprising that the virus has made it impossible for a lot of contracts to be performed, especially those whose lifespan and relevance depends on their performance within a certain period. The fact remains that a lot of parties would be unable to meet with their obligations during this period and in the aftermath of the virus. The erring parties can, however, seek protection under the doctrine of frustration of the contract due to supervening impossibility of performance.

It appears in this case that the conditions in which the Country and indeed the whole world is, are totally out of the control of the parties and fulfilment of the contract within the time agreed would be impossible.

Who is responsible for losses when a supplier cannot supply a customer due to the COVID-19 outbreak?

Generally, In Contract of sale, the risk does not pass to the buyer unless such buyer takes possession of the goods in question. And it is impossible for the buyer to take possession if the seller is unable to deliver the goods. The question then is, who should be held liable for failure to perform the contract; should it be the seller who made all efforts to deliver and failed or the buyer who has fulfilled all or part of his obligations? The answer is dependent on efficiency or otherwise of the Force Majeure Clause included in the Contract or a reliance on the doctrine of frustration.

Force Majeure are events beyond the parties’ control that could not have been prevented by any amount of foresight and pains. They are unusual and unforeseeable circumstances which could not have been avoided even if all due care had been exercised. The Force Majeure Clause serves to avoid the consequences of a breach of contract (which in this case is what the seller has done by failing to deliver the said goods) caused by such an event. In the English case of PETER DIXON AND SONS, LTD. V. HENDERSON CRAIG AND CO. LTD. (1919) 2 KB 778, the court held inter alia that the scope of a force majeure clause would be construed expressly and where necessary by applying the Ejusdem generis rule to clarify what the parties intended.

Depending on the wordings of the clause, some allow for extra time to perform the contract while others, allow for termination of contract if the supervening event continues for a specified period of time. However, this would only avail the erring party if the clause is contained in the contract and sufficiently couched. This is glaring in the decision of the Court in the case of GLOBE SPINNING MILLS NIGERIA PLC v. RELIANCE TEXTILE INDUSTRIES LIMITED (2017) LPELR-41433(CA) wherein it was held that: “Force majeure is a common clause in contracts which provides that one or both parties can cancel a contract or be excused from either part or complete performance of the contract on the occurrence of a certain specified event or events beyond parties’ control…”

The erring party could also rely on the doctrine of frustration premised on the fact that the conditions under which the breach occurred were totally out of his control as is the case here; with the lockdown and restriction of movements. However, it is important to note that it is the court and not the parties that can determine whether an event constitutes a frustrating event as held by the Supreme Court in MAZIN ENG. LTD v. TOWER ALUMINIUM (1993) 5 NWLR (Pt. 295) 526. In the absence of any provision to the contrary in the contract, it is more practicable and justifiable that the losses be split between the parties while each party take reasonable measures to mitigate their losses.