While the outbreak of the COVID-19 pandemic subsists, the risks for businesses of not being able to fulfil their contractual obligations or of experiencing the default of the other contracting party is a real concern for economic operators.
To manage this unprecedented situation and provide an adequate response, a careful analysis of the contract terms is essential to enable parties to exercise their rights if a dispute arises from non-performance.
As a first step, it will generally be a question of analysing the possibility of invoking the defence mechanism of force majeure.
What is force majeure under Mauritius law?
The force majeure doctrine is based on Articles 1147 and 1148 of the Mauritius Civil Code (the Code), but the Code does not contain a definition of such term.
Article 1147 requires the contracting party to show that the non-performance has a cause which is extraneous to him/her and for which he/she is not responsible. In accordance with Article 1148, a party can be exonerated of contractual liability if it proves that the breach was caused by an event of force majeure or fortuitous event.
Generally, there is force majeure when an event beyond the control of the contracting parties, which could not have been reasonably foreseen at the time of conclusion of the contract and whose effects cannot be avoided by appropriate measures, prevents the execution of the contractual obligations.
Does COVID-19 and the resulting governmental measures amount to force majeure?
Characteristics of a force majeure event
To be considered as a force majeure event, the pandemic will need to satisfy the two characteristics set out by the Court of Civil Appeal in the case of General Construction Co. Ltd v Ibrahim Cassam & Co. Ltd1:
1. The event must have been unforeseeable/unpredictable at the time of conclusion of the contract – “Imprévisibilité”
On the issue of foreseeability, it seems that it is primarily a question of time and place2:
- If an agreement was signed on or around 18 March 2020 (i.e. the date on which the first three cases of COVID-19 were declared in Mauritius), it may be argued that it would satisfy any enforceability requirement as the pandemic and the governmental lockdown measures could not have been foreseen at the time. However, this is still subject to the views that our courts may adopt.
Regarding contracts concluded with international parties (such as China and/or other countries affected by the pandemic at that time), the date to be retained may be 30 January 2020, the date on which the World Health Organisation declared that the COVID-19 was a major public health emergency of international concern. It might also differ depending on the spread of the virus in the country concerned.
- However, great uncertainty exists with regard to contracts concluded after 18 March 2020 (and 30 January 2020 worldwide). It may be argued on the one hand that the spread of the pandemic was public knowledge at the time those contracts were executed and that it was expected that appropriate actions would be taken by the Mauritian Government if the pandemic worsened. On the other hand, although there has certainly been common knowledge of a global pandemic, it may be considered that the unprecedented impact of the COVID-19 on businesses and on the economy at large, could not have been foreseen.
2. The event must be irresistible/insurmountable – “Irrésistibilité”
The main criterion of the concept of irresistibility is whether the event was resistible or irresistible. Even if it is found that the event was irresistible, it is important to consider whether the parties could have mitigated the consequences of such event. In other words, whether all reasonable measures have been taken to render the predictable resistible3. As a result, the following questions may arise:
- Could measures have been taken by the parties to minimise the impact of the COVID-19 and resulting lockdown measures on their business activity?
- Was it actually impossible for the impacted party to fulfil its contractual obligations during the lockdown?
- Was this pandemic so empowering that its consequences could not be prevented or managed4?
It is understood that a mere difficulty to perform the contract or the contract becoming too onerous will not meet the requirement of irresistibility. The events in question must be a real obstacle to performance of the agreement5.
For instance, in the case of a contract for the delivery of goods imported from China and received by air freight, the COVID-19 and resulting governmental measures will certainly not satisfy the requirement of irresistibility if delivery is still possible by sea even if it would take longer to deliver. Contrarily, it is likely that the courts will consider that the consequences of such event could not be managed if there is a global shortage of the products.
In the same line of thoughts, some companies that have suffered the consequences of the pandemic could certainly have limited its consequences by adopting anticipatory and precautionary measures or by implementing alternative practices, such as remote working, online consultations and virtual classrooms.
In loan, credit and facility agreements, it is unlikely that an event of force majeure such as the COVID-19 and lockdown measure would render the obligation to make funds available to the lender impossible (although it may be more onerous or risky). On the other hand, although the borrower could seek to avail himself of force majeure to justify an impossibility of satisfying the payment terms of the loan, it could trigger a number of other events of default across the financing documents. It should be noted that in France, it has clearly been established that a party cannot be exempted from his/her contractual payment obligations by invoking a case of force majeure6 (although this is subject to further developments).
Therefore, whether COVID-19 could be considered as a force majeure event, is not as straightforward as it may appear from a legal perspective. Fulfilment of this requirement will thus depend on each transaction and the courts will, on a contract-by-contract basis, assess whether performance was actually possible in view of the current pandemic and curfew orders.
Views of the courts/jurisprudence on epidemics and pandemics
In Mauritius, our jurisprudence is relatively poor with respect to cases which specifically address the issue of force majeure in the context of an epidemic or virus outbreak.
In 1879, the Court held in Martin v Hatch7,
that although regulations made by the General Board of Health prevented the passage of cattle on public roads (concerning cattle infected by the epizooty), for the appellant seeking to invoke a case of force majeure, it was for him to prove that it was utterly impossible to move his cattle to some other contiguous ground. In the opinion of the Court, whilst the appellant had the possibility to do so, he did not show that he had applied to all the neighbours to seek consent to remove his livestock through the neighbouring land.
In the case of Messageries Maritimes Company v Hardy8, although there was an explicit contract between the respondent and the appellant, the sea carrier refused to take the passenger to South Africa on account of the epidemic of small-pox raging in Mauritius. The Court held in 1892 that the plea of force majeure was a good defence for having refused to admit on board a passenger who could have been a source of danger given the small-pox epidemic in Mauritius.
Although the courts did not consider whether the epizooty and small pox amounted to force majeure events, guidance can be sought from the above cases in terms of the necessity to mitigate the consequences of such events and the causal link that needs to be established.
Outside the context of virus outbreaks, the courts have also generally been reluctant to establish exoneration of liability on the basis of force majeure, whether in terms of tortious or contractual liability9.
In France, the country from which our Code was inspired, the first decision concerning the current pandemic was delivered by the Colmar Court of Appeal in March 202010 which qualified the risk of contagion by the COVID-19 pandemic as force majeure. This decision was delivered in the context of a confinement order which prevented a foreigner to attend his appeal hearing, taking into consideration that the applicant had been in contact with persons potentially infected with the virus.
However, it is worth noting that epidemics and virus outbreaks have not always been considered as force majeure events in France:
- The Court of Appeal of Nancy ruled in 2010 that the dengue epidemic did not have the characteristics of force majeure because "this disease affected around 5% of the population" and "did not present complications in the majority of cases”11.
- It was also considered in 2014 that the epidemic of H1N1 flu which was publicly announced and foreseen even before the implementation of health regulations, did not constitute an event of force majeure12.
- In 2018, in relation to cancellation of tourists’ vacations, the Court of Appeal of Basse-Terre (Guadeloupe) considered that the epidemic of the chikungunya virus did not satisfy the criteria of unpredictability and irresistibility as the virus could be cured by analgesics and is generally overcome.13
It may also be worth referring to the decision of the Court of Appeal of Agen14 which held that an epidemic of bovine brucellosis must be considered to present all the characteristics of force majeure. The judges relied on the unexpected virulence and contagiousness of the epidemic as well as the fact that it could be transmitted by any vector, such as insect bites or human body. In our view, such reasoning could perfectly be applied to the current COVID-19 pandemic.
On the basis of the above, it can thus be seen that the possibility for a contractual party to enforce a force majeure clause or to rely on force majeure is far from being automatic. The cases basically show that it is for the courts to determine in what situation and in what circumstances an event would constitute a force majeure15.
In our opinion, there are arguments to demonstrate that the COVID-19 outbreak satisfies the characteristics of force majeure (although it will also be subject to the date and context in which the contract was executed) given that the outbreak contains both a natural component which is the virus itself and a governmental element, such as the curfew measures which make the execution of contracts even more difficult.
In any case, it seems that no courts have had the opportunity to witness events of the magnitude of the one we are currently experiencing.
Does your contract contain a clause of force majeure?
The first step is to determine whether a force majeure clause has been incorporated into the contract and if such clause has been included, a careful analysis of the wording is required.
Yes, and the definition includes epidemics (COVID-19) and mandatory act of governments (i.e. “fait du prince”)
Parties to a contract are entitled to determine in advance the events constituting force majeure or exclude them. They should bear in mind that it is possible to expressly exclude the force majeure defense from a contract as it is not a public policy provision.
In certain circumstances, the agreement may expressly include the terms “epidemics”, “virus outbreaks”, “health risks” and/or also “governmental or other similar type of restrictive measures” in the definition of force majeure. In such case, the position of the contracting parties will be strong as they will certainly be entitled to rely on that clause to justify non-performance. The occurrence of the pre-determined event will then constitute in itself force majeure without the need to ascertain whether the facts meet the legal criteria of force majeure.
However, when invoking such force majeure clauses, it is important to take into consideration that in practice, non-performance by one party may lead to a domino effect resulting in non-performance by other parties.
For instance, in the context of a financing agreement, if the underlying commercial contract which forms the basis of the financing from the bank cannot be performed due to a force majeure event (such as supply of manufactured products), the bank may potentially suspend further drawings after having been notified of such impediment. In this situation, the force majeure event will have an impact on the bank even if it did not have any direct effect on the financing agreement in the first place.
Yes, but the definition does not include epidemics and/or pandemics
In practice, most of the contracts do not make reference to the above specific terms, as it is unlikely that at the time of execution, parties could have foreseen this unprecedented pandemic. Instead, these clauses define force majeure by reference to broader terms such as “(…) any other similar events or circumstances beyond the reasonable control of the parties”.
The parties may be entitled to rely on these more generic terms provided that the pandemic satisfies the above-mentioned conditions of “unforeseeability” and “irresistibility”. However, by relying on these broader terms, the affected party supports the risk of breach of contract claims. In fact, the party’s interpretation could be challenged and the judges could well consider that the event would not fall within the broader contractual definition.
As epidemics and pandemics are not necessarily provided for in contracts, a certain amount of claims are likely to be lodged under these generic terms. Although we are making reference to legal proceedings, parties should be aware that the dispute resolution mechanism agreed upon in the contract may also vary and provide for arbitration, mediation or otherwise. Mandatory injunctions may also be sought to force a party to execute its contractual obligations.
On another note, if the contract does not specifically provide that an epidemic or a pandemic is a case of force majeure or does not provide a force majeure clause at all, the parties do retain the possibility to amend the contract accordingly. However, needless to say that it may certainly be more challenging in practice as it will require the consent of all parties involved and imply that a certain number of compromises will have to be found.
No, the contract does not contain any force majeure clause
In the absence of such a clause, parties can still avail themselves of the concept of force majeure by operation of law in view of the provisions of the Code16. Once again, parties will have to rely on the above mentioned characteristics to determine whether COVID-19 may be considered as a force majeure event.
Whilst many agreements do not contain force majeure provisions, parties may also be entitled to rely on material adverse change (MAC) clauses, making reference to events which could generally affect the “business, operations or financial conditions” of a party or the performance of its contractual obligations.
In the context of M&A transactions for instance, MAC clauses will be relevant for potential acquirers which have executed but not completed an agreement for the purchase of a target company or assets and would like to cancel the deal without liability or claim, as the designated events or circumstances are materially detrimental to the target company. Accordingly, acquirers will certainly have regard to the impact of the COVID-19 on the target company, and seek to rely on these clauses.
What are the effects and consequences of force majeure?
The usual remedy following the occurrence of a force majeure event is that the party invoking such event will be relieved of its obligations to perform, without any damages or penalties thereof.
Non-performance can be temporary, such as contracts for airline services which are now subject to travelling restrictions, or permanent which will generally lead to the termination of the contract. In fact, it may give the non-affected party the right to source services from another supplier or to terminate the contract if the party suffering from the force majeure remains unable to perform its obligations for a specified period.
In the employment context, reference could be made to the case of Bisasur G. v the Independent Commission against Corruption17 in which the contract of employment of the plaintiff was terminated following amendments brought to the Prevention of Corruption Act 2002, abolishing the post of Deputy Commissioner. The Court held that, in these circumstances, the defendant cannot be held liable, whether under tort or contract, for the premature termination of the agreement.
With reference to French jurisprudence and textbooks, the Supreme Court also confirmed that a case of force majeure will have the following consequences:
- If the impediment is of short duration, with the hope of a resumption of the execution, the force majeure entails the simple suspension of the employment contract; and
- If the impediment is permanent or lasting, the contract is terminated without compensation on either side.
It was also specified that in matters of fixed-term employment contracts, force majeure releases the parties from their obligation to respect the term, and in particular the employer escapes any condemnation of compensation for sudden termination. The Court specified that the compensation of which the employee is deprived, includes the payment of his/her wages and the various indemnities due in the event of dismissal by the employer, since there is not, in the event of force majeure and by definition, dismissal.
If we look at “contrats de bail”/lease agreements, whilst it appears that the French courts have established that payment obligations are not affected by force majeure, there is still uncertainty prevailing in Mauritius as to whether the lessee must pay for the rent when it doesn’t have access to the premises during the lockdown.
In fact, with respect to premises closed and unoccupied during the lockdown (such as office spaces, retail spaces, shopping centers and restaurants), many entities have been forced to close their businesses following curfew orders, and are under the obligation to honour their rent and charges even if they are unable to occupy their commercial space.
Parties may argue that as a result of the pandemic and lockdown measures, the landlord is unable to execute its fundamental contractual obligations, i.e. its obligation to deliver the premises to the lessee/“délivrer la chose louée” and its obligation of quiet enjoyment/“jouissance paisible” of the said premises (Article 1719 of the Code), and no practical measures can be taken to permit physical occupation of the premises.
Although not yet tested by our courts, as the tenant is prevented by law to occupy the premises and/or operate its business, it could potentially avail itself of the force majeure event to suspend payment of rental.
The tenant could also invoke “l’exception d’inexécution” which, has noted by the Supreme Court in the case of Manser Saxon Contracting Ltd v. Goundan Co. Ltd18, may apply with regard to “contrats de louage”. The mechanism of “exception d’inexécution” would entitle a party to a contract to refuse to perform its share of obligation when its counterpart has failed to fulfil its own obligations. The “manquement” (failure) by the other party must however be “suffisamment grave” (of a serious nature), which may be the case with respect to lease agreements since the obligation of quiet enjoyment is a fundamental one.
The same reasoning could apply in terms of service agreements, which may concern a variety of sectors such as gardening and cleaning services as well as transport contracts. With most service providers not having been granted work access permits, they are unable to perform their contractual duties during the lockdown. As the obligation of payment and performance of services are in most cases concurrent and shall be performed simultaneously, it may be argued that COVID-19 and the resulting lockdown suspend the obligation of payments as a result.
On the other hand, showing that a contract becomes unprofitable, uneconomic or significantly difficult to perform is unlikely to justify non-performance. This is particularly relevant in the present circumstances, with the COVID-19 pandemic creating considerable economic constraints for businesses. On this basis, with the outbreak having a significant impact on the lessee or customer’s economic standing, it appears that the pandemic and resulting lockdown will not constitute the sole cause impeding contractual performance.
In any case, businesses should be particularly careful when addressing payment obligations in the context of force majeure as non-performance could trigger default clauses and entitle the other party to terminate the agreement. It will also put the affected party at risk of being sued for breach of contract. However, needless to say that, with the absence of case-law addressing pandemic/virus outbreak events in Mauritius, it is difficult to determine which standard/principle should be applied in practice.
In view of the unprecedented global crisis, requesting amicable renegotiations outside the legal framework in order to suspend or adapt the contracts to current circumstances could be the best solution to consider, such as contacting the other party to explore available alternatives including suggesting agreement for smaller instalments or moratorium for payments.
Consequences provided under the contract
As the provisions relating to force majeure are not mandatory, parties are free to foresee the consequences of a force majeure event on their contractual relations and the conditions attached to such event. These conditions vary and may include the obligation to continue performance of unaffected obligations for the duration of the force majeure event or termination of the contract after an extended suspension period without any claim or liability.
When the force majeure clause has delimited the obligations and consequences of force majeure, it will be necessary to assess the events according to what has been provided for in the contract and comply with any imposed requirements, such as the obligation to give notice of a party’s intention to rely on force majeure and/or the express obligation to mitigate.
We can only invite all parties to carefully review their contracts and remain attentive to potential laws and regulations that could be adopted including the forthcoming COVID Bill. Parties to cross border transactions shall also be particularly vigilant. Although the concept exists in most legal systems, the conditions of its implementation and its effects may differ. It is therefore necessary to analyse the situation on the basis of the law applicable to the contract.
We also inevitably expect a large number of contractual claims to be lodged, although it is generally recommended to consider one of the alternative dispute resolution methods. The cash flow difficulties that many businesses are already facing will also result in several statutory demands and winding up petitions being lodged before the Bankruptcy division of the Supreme Court.
On this basis, it is always prudent to obtain legal advice and seek assistance to ascertain whether or not force majeure can be invoked in the particular circumstances.
2Pick n Buy & Anor v State and IBL v State & Ors 2014 SCJ 46, in which the Supreme Court held that acts of riot as a result of the death of singer Joseph Reginald Topize (“Kaya”) amounted to force majeure events.
3General Construction Co. Ltd v Ibrahim Cassam & Co. Ltd 2011 SCJ 19
6Cass. Com., 16 Sept. 2014, no 13-20306. It was also held in 2016 that the spread of the Ebola virus in West Africa did not make the lessee’s payment obligations impossible (Pôle 1, chambre 3, March 29, 2016 - n ° 15/12113)
7Martin v Hatch 1879 MR 145
8Messageries Maritimes Company v Hardy 1892 MR 5
9General Construction Co. Ltd v Ibrahim Cassam & Co. Ltd 2011 SCJ 19; Inter Ocean Aviation Finance Corporation v Air Zambezi (Private Limited) & Anor 2011 SCJ 294; Mauritian Eagle Leasing Co Ltd v J L P Meunier 2015 SCJ 228; New India Assurance Co Ltd v Sun Insurance Co Ltd & Anor 2017 SCJ 176
10Colmar, 6th ch., March 12, 2020, n ° 20/01098
11CA Nancy, November 22, 2010, RG n ° 09/00003
12CA Besançon, 8 janv. 2014, no 12/02291
13CA Basse-Terre, Dec. 17 2018, no 17/00739
14CA Agen, January 21, 1993, JurisData n ° 1993-040559
15General Construction Co. Ltd v Ibrahim Cassam & Co. Ltd 2011 SCJ 19
16There is an important distinction to be made between the common law and civil jurisdictions in the sense that the doctrine of force majeure does not exist under common law and as such, will apply only when a clause is included in the contract. As an alternative, the common law doctrine of frustration may be invoked.
17Bisasur G. v the Independent Commission against Corruption 2014 SCJ 189
18Manser Saxon Contracting Ltd v. Goundan Co. Ltd, 2017 SCJ 409