Force Majeur & COVID-19

COVID-19 – Invoking a Force Majeure Clause

Many are currently asking whether the crisis caused by COVID-19 enables an obligor to invoke the “force majeure” clause. This question is being asked because many, it seems, are uncertain whether the classification of COVID-19 as “force majeure” releases persons from executing their obligations.

For the purposes of this article, these “obligations” shall be limited to (a) contractual obligations generally, (b) obligations of debtors to do or give a thing, or not to do a thing, and (c) obligations of lessees to pay rent.

I.        “Force Majeure”, “Fortuitous Event”, or “Irresistible Force”?

Without going into the specifics of standard force majeure clauses in contracts, one first needs to understand how a force majeure event is treated at law. Indeed, the Civil Code provides three terms of art which are relevant to the analysis at hand:

i.             “force majeure” (“forza maġġuri”, in Maltese);

ii.           “fortuitous event” (“aċċident”); and

iii.         “irresistible force” (“forza maġġuri” too).[1]

The Civil Code does not provide a definition and therefore an analysis of court judgments is necessary. Our Courts have stated that that the terms “forza maġġuri” and “każ fortuwitu” are used interchangeably.[2] Although the term “każ fortuwitu” is not found in the Civil Code, it can be logically and neatly translated in English to “fortuitous event”.

What, then, is the meaning of all these terms?

II.              What is “Force Majeure”?

A definition of “force majeure” may be traced back to 1919 when the Court of Appeal stated (in Italian, originally) that it is “an unpredictable, or, at least, inevitable, event which is independent of voluntary or culpable actions or omissions.”[3]

Another definition of “force majeure” was given by the Court of Commercial Appeal in 1942 when it explained that, “for there to be a fortuitous event, there must be an event an unpredictable and inevitable event which does not depend on a debtor.”[4]

Upon first glance, one will probably argue that the events provoked by COVID-19 satisfy the said definitions: certainly, the effects of COVID-19 were unpredictable, inevitable, and independent of anyone’s actions or omissions.

Upon closer inspection, however, it seems that the operative word – or one of the operative words – of the definitions of “force majeure” is “event”. Can COVID-19 be classified as an “event”? Probably not. In 2016, the Court of Appeal, by quoting earlier judgments, explained that:

for there to be a “fortuitous event”, it is not enough that the event be unusual, unproportionate, and produced by the forces of nature, but it must be inevitable in such a may that it cannot be avoided by the ordinary diligence of a bonus paterfamilias (that is, the reasonable man).[5]

Accordingly, it seems that the “event” to which force majeure refers means “a single occurrence of nature”. COVID-19, being an ongoing pandemic, cannot be effectively considered as a “single occurrence”, unlike a storm, flood, or an earthquake.

Our Courts have also explained that, in cases of “force majeure”, one must find oneself impeded from executing the obligation in question.[6]

In truth, it is not COVID-19 in and of itself which is impeding people from executing their obligations; that is, COVID-19 is not impeding people from, for instance, operating hotels or opening shops. Rather, it is the effects of parliamentary intervention in light of COVID-19 (namely the enactment of various legal instruments) over the past weeks which is preventing people from doing so.

In this respect, in 2001, the First Hall, Civil Court, held that:

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 […].

It is known and accepted in jurisprudence that an act of the Governing Authority is a fortuitous event which excuses whosoever does not honour an agreement. In the case Raymond v. Busuttil (Collection Vol XXXI.I.554) it was said 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. […].” In the case German v. Apap Bologna (Collection Vol. XXXVII.II.653), it was then said in a clear manner that “an action of the Administrative Authority is equated to force majeure.”[7]

Whether our Courts will still agree with this reasoning and whether our Courts will still classify the enactment of the various Legal Notices enacted over the past weeks as “force majeure” is to be seen.

III.           Contractual Obligations

Contracts may include “force majeure” clauses. These clauses, when included, normally excuse a party from its obligations and/or liabilities under the contract in question when a “force majeure” event – as defined in the contract – prevents such a party from fulfilling its obligations.

The definition that the term “force majeure” is given may vary from one contract to another. Yet, generally such a term would be defined as an extraordinary event or circumstance beyond the control of the parties that prevents one or all from fulfilling their obligations. To this end, “force majeure” may be defined to include, among other things, events such as war, natural disasters like earthquakes or hurricanes, and acts of government.

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 and/or COVID-19 itself, it is highly likely that parties to that contract are excused from their obligations and/or liabilities arising under the 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.

IV.           Obligations of Debtors and Lessees

The Civil Code provides the following two Articles which may be relevant in the current circumstances.

The first is Article 1134 which concerns debtors as it states that a 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.[8]

The second is Article 1571 which 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.[9]

In the first case of debtors, it is clear that “force majeure” (in general and not only in the current circumstances) does not mean that debtors can choose not to do something. To the contrary, it means that, if debtors cannot do something due to “force majeure” (or if they do something which they were not supposed to do), then they are not liable for damages. Therefore, “force majeure” may not be used to avoid doing an obligation, but it may be used to explain why the obligation could not be done.

In the second case of lessees, the law seems to allow the possibility of dissolving the contract or asking for a reduction in rent. Immediately, therefore, it can be seen that, in cases of “force majeure”, late payment is not allowed. 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 (which is the one which counts) is less obscure as it speaks of when “il-ħaġa mikrija ssir ma tiswiex biex wieħed jinqeda biha”. The term “ma tiswiex biex wieħed jinqeda biha” may prove to be interesting, particularly in terms of commercial leases where the commercial tenements leased are not currently serving the purpose for which they were in fact leased.

All in all, however, debtors and lessors alike must keep in mind that “force majeure” does not provide grounds to simply refrain from fulfilling one’s obligations; at best, it may provide grounds to explain why it was impossible to fulfil them. Moreover, in Court, it would be the job of the debtors and lessors (or their lawyers) to prove the “force majeure”.

Disclaimer │ The information provided on this Update does not, and is not intended to, constitute legal advice. All information, content, and materials available are for general informational purposes only.  This Update may not constitute the most up-to-date legal or other information and you are advised to seek updated advice.

Endnotes