Can a 'force majeure' clause be invoked in view of COVID-19?
Contributed by Dr Gianluca Cappitta at Mifsud & Mifsud Advocates
04 January, 2021
A 'force majeure' clause is commonly inserted in contracts as a means to excuse the performance of a contract on the basis of a defined set of circumstances, which could include but are not limited to wars, acts of God such as floods, earthquakes, etc. A 'force majeure' clause is therefore invoked by parties to be released from executing their obligations.
For the purposes of this article, the obligations which shall be assessed will be limited contractual obligations and obligations of debtors and lessees.
What constitutes 'force majeure'?
Our law does not give a definition of what constitutes 'force majeure', but throughout the Civil Code one will find a number of references to the terms 'force majeure', 'fortuitous event' and 'irresistible force'. Therefore, to better understand what constitutes a 'force majeure' an analysis of Court judgements is required. In the judgements of Alfred Zarb et v. Mondial Travel Agency (Court of Appeal, 30th January 2009) and Mapfre Middlesea p.l.c. v. Carmelo Saliba (Small Claims Tribunal, 9th January 2019), the Courts had concluded that the terms 'force majeure' and 'irresistible force' are used interchangeably.
The Maltese Courts have provided much needed guidance to establish a set of principles of the 'force majeure' defence against liability, as well as to define the notion of an 'irresistible force' or a 'fortuitous event' and the circumstances giving rise thereto.
In the judgement of George Farrugia et. vs. Pacifika Masini noe (Civil Court, First Hall, 7th January 2008) observed that for the purposes of 'force majeure', the following elements must result 'simultaneously'.
- The event must be dictated by an irresistible force in that it subjects the party in question to the impossibility of fulfilling his obligations
- The event must be unpredictable
- The event must be external
- the event must not be able to be foreseen by a bonus paterfamilias, i.e. by the reasonable man.
Is the COVID-19 pandemic a fortuitous event?
Considering the above elements, it could be safely concluded that the pandemic may not fully meet these criteria for the outbreak to be considered as a fortuitous event. It is not COVID-19 in and of itself which is hindering people from honouring their obligations but rather, it is the effects of legislative intervention in an effort to curb the pandemic over the past months which may have or may continue to prevent people from living up to their obligations.
In the judgement of Emmanuel Ellul vs Victor Custo noe et (Civil Court, First Hall, 3rd October 2002), the Court held that an agreement between two persons is always subject not only to civil law provisions of public order, but above all else, also to what the law dictates. The intervention of the Legislature can always neutralise private agreements and the only limitation on Government is that it must, in every case, respect the fundamental rights of the citizens as protected by the Constitution and the European Convention on Human Rights.
Referring and resting on several judgements, the same Court continued to argue that an act of the Governing Authority is a fortuitous event which excuses whosoever does not honour an agreement. It continued by arguing that "in order for there to be a fortuitous event, there must be an event which does not depend upon a debtor, an unpredictable and inevitable event" and that "an action of the Administrative Authority is equated to 'force majeure'".
Whether the interpretation of our Court on the enactment of the various legal notices over the past months will fall within the same argumentation of our jurisprudence remains to be seen.
If a contract has included a 'force majeure' clause, and if such a clause has been worded in such a way as to encapsulate the Legal Notices enacted over the past weeks or the term has included the pandemic itself, it is very likely that parties to that contract may be excused from their obligations or liabilities arising under that contract.
However, for parties to be so excused, it must be clearly proven that the 'force majeure' event made it impossible for them to execute their obligations under the contract.
Obligations of Debtors and Lessees
Article 1134 of the Civil Code stipulates that "The debtor shall not be liable for damages if he was prevented from giving or doing the thing he undertook to give or to do, or if he did the thing he was forbidden to do, in consequence of an irresistible force or a fortuitous event."
Whilst 'irresistible force or fortuitous events' are not defined in our law, this wording is repeated in other articles of the Civil Code as a source of exoneration from civil liability. For instance, in a scenario of a contract for use, a borrower is not liable for indemnity if the thing forming the subject of the contract perishes by a fortuitous event (Article 1828 of the Civil Code). The loss of a thing due can also bring about the extinguishment of an obligation as laid down by Article 1207 of the Civil Code.
These provisions of the law remain subject to the various doctrine as established by the various pronouncements of the Civil Courts, which seem to have qualified the instances giving rise to a 'force majeure' event from time to time.
Article 1571 concerns lessees as it stipulates that, if, during the lease, the thing let is destroyed in part, the lessee may demand either an abatement of the rent or the dissolution of the contract; the lessee may also demand an abatement of the rent or the dissolution of the contract if, owing to a fortuitous event, the thing let has become unserviceable.
In the case of debtors, it is clear that 'force majeure' does not mean that debtors can choose to default from their obligation. Rather, it means that, if debtors cannot do something due to 'force majeure', then they are not liable for damages. Therefore, 'force majeure' may not be used to avoid carrying out an obligation, but it may be used to justify why the obligation could not be honoured.
In the case of lessees, the law allows the possibility of dissolving the contract or asking for a reduction in rent. In addition, the contract may be dissolved, or the rent may be reduced if the thing let (a) is destroyed in part, or (b) has become unserviceable. The term 'unserviceable' is note defined in the Civil Code. In this respect, the Maltese version of this Article provides some clarity and guidance as it reads 'il-Ä§aÄ¡a mikrija ssir ma tiswiex biex wieÄ§ed jinqeda biha'. The term 'ma tiswiex biex wieÄ§ed jinqeda biha' is significant when considering commercial leases, wherein owing to the effects of the Legal Notices brought about by COVID-19 (which notices have restricted retail outlets and bars, amongst others), such leases were not serving the purpose for which they were leased.
The way forward
Taking into consideration the impact of COVID-19 and the factors impinging on the severability of contracts, it would be prudent to review all active commercial contracts, giving particular attention to 'force majeure' provisions and applicable law.
Consequently, initiate discussions with the contracting party, if applicable, with an aim to amicably resolving the contractual position. Specific attention and care should be exercised if new contractual agreements are being entered into at this time, especially in relation to the 'force majeure' clauses. When considering a 'force majeure' claim, legal assistance ought to be resorted to so as to avoid the consequences of a wrongful claim, which could be substantial.
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