Covid-19 pandemic: contractual and labour laws consideration(part 1 of 3)
Corona virus disease (COVID-19) is an infectious disease that is caused by the novel corona virus. COVID 19 is not only a global pandemic but also a source of significant regional and global economic disruption. The impact of the virus has been felt across the globe with some countries in total or partial lock down and positive cases rapidly increasing over weeks. The disease, which spreads through contact with an infected person when they cough or sneeze, was first recorded in Wuhan, China and has since spread exponentially outside China with other countries reporting positive cases of the disease in January 2020.
Kenya’s first positive case of corona virus was confirmed on 13th March 2020. According to Health CS, Mutahi Kagwe the country’s first COVID-19 patient, a 27-year old Kenyan, travelled into the country from the US via London and tested positive a week after returning from the US. So far Kenya has over one hundred confirmed positive cases. As a result, the Government of Kenya has opted to take a raft of preventive measures including banning of all public gatherings, making wearing of masks mandatory, imposing a nationwide curfew from 7.00 pm, closing several county borders including Nairobi Metropolitan Area, Mombasa and Kilifi in a bid to contain the virus. In light of these developments, it is crucial that we analyze the legal impact of this pandemic.
Legal Contractual Considerations
Due to the various preventive measures instituted by world governments to curb the spread of COVID-19 such as travel restrictions; it is anticipated that contracts between parties may either be temporarily or permanently frustrated or impossible to perform. Ordinarily, non-performance of contractual obligations amounts to a breach of contract pursuant to the Law of Contract in Kenya.
Nevertheless, a ‘’force majeure’’ clause operating under the common law doctrine of frustration may offer relief from contractual obligations subject to various conditions. Force majeure is a clause commonly found in commercial agreements, which states that one or both parties will not be liable for any delay in performance or non-performance of its obligations upon the occurrence of certain supervening events, including pandemics like COVID-19. The clause acts as a shield for parties that are unable to perform their obligations. However, the burden of proof lies on the person alleging non-performance or delayed performance on grounds of force majeure. The affected party must demonstrate impossibility of performance, show that the impossibility is linked to COVID-19 and that they could not reasonably foresee its occurrence. Mere reliance on a force majeure clause does not necessarily mean termination of the contract altogether and depending on the drafting of the clause, the performance of the contract can be suspended or be otherwise postponed for a certain prescribed period. This is not a concept enshrined in law but is borne out of the contractual terms and conditions agreed by the parties. It should be noted that Force Majeure provisions cannot be implied into a contract.
Parties to a contract generally negotiate and agree on the events that constitute a force majeure event and COVID-19 despite being declared a pandemic, may not necessarily be expressly stipulated under existing contracts. Consequently, it is paramount that contractual parties undertake various measures to mitigate potential contractual liabilities in the event that the effects of COVID-19 makes the contracts temporarily or permanently impossible to perform.
Critical Issues for Contractual Parties
As a supplier or customer, one needs to ensure that your new contracts cover boilerplate clauses on force majeure and consider whether the clause should expressly include pandemics, inhibition of travel and certain utilities as a supervening event. The clause should have a notification requirement and deal with issues that may arise if a force majeure event (such as COVID-19) occurs. On the other hand you may also rely on breach of contract where the contract does not make provision for a force majeure clause and the counterparty does not perform or delays performance.
In existing contracts, parties need to review them so as to pinpoint whether their force majeure clause covers pandemics such as COVID-19 and the notification requirements and remedies agreed between parties. If the contracts do not have provision for pandemics, parties should initiate mitigation measures such as amending/varying or entering into consensual agreements on potential liabilities that may arise. Moreover, businesses should initiate the force majeure requirements under their existing contracts such as notifying their counterparties, in the event of delayed or impossibility of performance.
(Part 2 will be published on 23rd April 2020 and part 3 on 28th April 2020)
Partner, TLO Law Advocates Associates
Email: [email protected]
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