Coronavirus & the doctrine of commercial impracticability

Judge Sloss once explained, "A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at excessive and unreasonable cost.”

It is through the lens of Judge Sloss that I view any discussion on COVID-19 and the pandemic is continuing to have on businesses. It should be universally clear by now that a lot of things previously normal that happen in our lives and our businesses have become impossible or impractical.

In my article on COVID-19 & Force Majeure last week, we quoted the Gibson Dunn Law Firm as stating, “Whether or not the contract contains a force majeure clause, the common law doctrines of impossibility or commercial impracticability may be available and legal analysis of such a claim should be conducted…the party asserting this defence will bear the burden of proving that the event was unforeseeable and truly rendered performance impossible, and the doctrine generally is applied narrowly…

if an agreement does not have a force majeure or “act of god” clause, an analysis under the doctrine of impossibility or commercial impracticability, depending on the jurisdiction, may be warranted.”

Last week’s article triggered some healthy discussions amongst readers and myself. That article had, as I put it, “real gems from a real lawyer and a real law firm”. Today’s article is the content of dialogues with two good friends, one being my proclaimed King of Brainstorming, and the other the man I will credit if ever I take up full-time Pan-Africanism.

Foster Awintiti Akugri, the Stanbic Bank Incubator Manager and Founder of Hacklab Foundation, explores how COVID-19 could trigger commercial impracticability for contract holders. Tom Arowojolu is a Director at Mainbridge Group and CEO of Mainbridge Investment Advisory. He touches on what he calls the “Dawn of a New Reality”.

Before you read it, I agree with Tom’s assertion that, in legal proceedings and within a legal framework not subject to conspiracy theories and the like, the corona virus cannot be automatically categorized as an “Act of God”. I say this because, from a legal standpoint, the onus is on whoever is making the claim, be it Force Majeure or Commercial Impracticability, to prove the aforementioned claims. It is going to be very hard to prove that, in these times of advanced modern technology, a virus like this can only be an “Act of God” and not engineered in a lab. Enjoy the read!

How COVID-19 could trigger common law doctrines of Commercial Impracticability.

Let me start from the national level. The COVID-19 has been so critical to the extent that governments have had to shut down certain arms of its operations in terms of economic activities as a measure to curb the spread. And this has disrupted a lot of value chains and supply chains businesses all over.

Huge sections of the Ghanaian economic community now seem to pose a threat to national security and risk defying the executive order of the President of Ghana if they go about their breadwinning activities as they are used to. So this puts businesses in some form of a shamble where they are caught between “do we fulfil the deal or do we come to a consensus to postpone whatever we may have agreed on or committed to”.

And in as much as a contract is a contract, even in the absence of force majeure, some circumstances can make execution impossible or impractical. In this instance, it is an executive order of the President of Ghana, the one person of the highest authority of any economic environment putting an embargo on and limiting some business operations. This may definitely have an impact on some types of businesses and some types of contracts.

Let’s take another instance. Assuming I got involved in an accident today or I got paralysed and I am unable to fulfil a certain obligation because of that incident. If I can demonstrate clearly with evidence that it is beyond my control to get my duty done as per a contract, then common law doctrines of commercial impracticability could be enforced.

But again, it depends on how the contract is also drafted. There are a variety of avenues that this may end up taking. Severability Clauses may only allow the courts to void one part of the contract while keeping the other parts very much alive.

[Severability Clauses might say, “If any clause, or portion of a clause, in this Agreement is considered invalid under the rule of law, it shall be regarded as stricken while the remainder of this Agreement shall continue to be in full effect”.]

Also, keeping in mind that Severability Clauses potentially allow only parts of a contract to be voided, everything that’s happening with these lockdowns other COVID-19 situations do not necessarily make contracts automatically void when the common law doctrines of commercial impracticability is enforced. You may consider giving an extension to the other party or suspending the activity until both of you have agreed on something. But it also gives the right to one party to terminate the contract.

This becomes the much more complex part of it, which in this circumstance is the impact of why you are writing this article right? To seek the opinions of your readers as to whether people can take advantage of these circumstances to get out of contracts.

[At this point I interjected that “Advantage” is a strong word: this is more like the exploration of an option that readers requested I delve into after reading a little about it in the closing paragraph of my last article on ‘COVID-19 & Force Majeure’. Foster continued…”

Ok, then let me rephrase it as this is explore considerations to taking precautions in light of the complications of COVID-19 to renegotiate contracts which they were initially tied to and now seem to have no option than to fulfil them.

Most people have Force Majeure clauses in their contracts though which addresses pandemics. And technically, this is a pandemic.

So terrorism, earthquakes, hurricanes, acts of governments, plagues and/or epidemics are usually what’s mentioned in Force Majeure clauses. So where the term epidemic is used, it could be argued that it loosely also refers to an pandemic, which clearly COVID-19 has been declared as such by WHO.

Recent events all over the world has and will affect every business differently. The imposition of travel restrictions, restrictions of import and outbound-inbound trade, other trade embargos, quarantines, closing down some buildings and borders, closing down or decongesting crowded areas like marketplaces, etc. These and many others are major hinderances to the many things that ensure that a trade happens or that a contract is executed successfully.

But then again, this doesn’t mean people should jump to cancelling contracts. Another clause that’s usually in many contracts is the Entirety of Agreement Clause. Thought it states that the agreement is complete and anything not written there is excluded, it allows you to make changes later to the contract especially when it also states that any additions should be signed by both parties first.

[Entirety of Agreement Clauses might say, “This Agreement embodies the entire, final and complete agreement and understanding between the Parties and replaces and supersedes all prior discussions and agreements between them with respect to its subject matter. No modification or waiver of any terms or conditions hereof shall be effective unless made in writing and signed by a duly authorized officer of each Party.”]

So if COVID-19 raises the situations of impossibility and commercial impracticality, look to enforcing the entirety clauses where you have to write to the other party to draw their attention to the facts on the ground. You shouldn’t assume that they should have agreed in principle that since the situation is this way, then everybody should know what to do. You have to put it in writing and inform the other party that due to circumstances arising, you would rather you two renegotiate the terms of the contract to reflect the current situation. In circumstances where there is uncertainty on fulfilling the obligations of both parties or one party, they usually come to a consensus whether to suspend the contract or terminate it.

The COVID-19 Virus and Dawn of a New Reality

In recent weeks a new reality has dawned upon the world which has a huge impact on how we engage socially and with our work routines. The disruption has led to isolation and a distinct change in work patterns. Business has been disrupted significantly with a detrimental impact on many sectors where some have even considered reducing their workforce numbers as a result. The longer this debacle continues, the more time the new reality will have to set in and thus become the new norm.

Business will have to continue in a different manner and some will either sink or swim depending upon how hard they've been hit or how quickly they're able to adapt.

As some businesses seek solutions to the current debacle numerous questions are being asked. Two key questions are:

What is the government doing to support businesses and their workforces during this uncharted period? And,

Can the Corona Virus pandemic be deemed as an act of God in force majeure? The answers are indeed critical to the survival of many businesses and also to the mental well-being of the workforce at large.

In response to the first question, many Governments have implemented a range of measures to assist businesses as they understand the gravity of what the businesses are up against with the current pandemic.

In response to the Corona Virus however the pandemic is not an act of God as it could be man-made hence I believe that the latter will prevail as the former has further implications.

However it is certain that we are in unprecedented and extraordinary times and therefore have to contend with the current circumstances. As the virus ravages the environment and changes the way we operate socially and in business we have to be prepared and adhere to the necessary precautions.