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Thursday, 28 May 20
COVID-19: A FORCE MAJEURE EVENT? - KYPRIANOU
KNOWLEDGE TO ELEVATE
While seeing the unexpected COVID-19 outbreak expanding worldwide and the first cases being identified in Cyprus, the commercial sector does not remain unaffected. Emergency measures such as travel restrictions, citizens placed on quarantine and self-isolation are only some of the factors that started to impact parties to commercial transactions that render contract performance physically or commercially impossible. May a party invoke contractually agreed force majeure clauses or, the doctrine of frustration in an attempt to protect themselves from being unable to meet its contractual obligations?
Force Majeure
The concept of “force majeure” (meaning "superior force"), is used commonly in contracts as a clause that essentially releases both parties from liability or obligation when an unexpected event or circumstance beyond the control of the parties, prevents one or both parties from fulfilling their obligations under the contract.
Determining whether the Corona-virus outbreak constitutes a force majeure event, is a matter of construction and will depend on the specific wording and the scope of the clause.
It is the case that force majeure clauses often contain a list of events that qualify as force majeure events. For instance, terms such as “epidemic”, “pandemic”, or more generic terms such as “disease” and “illness” are often expressly listed as events of force majeure. In such cases, it will be easier to claim force majeure protection, as COVID-19 is likely to qualify as a force majeure event. Also, terms such as “acts of government” or “national or regional emergency” may be listed so as to cover emergency measures taken by the government such as travel bans or placing citizens in quarantine in case of this novel outbreak.
Additionally, under common law, a party seeking to invoke that its ability to perform the contract has been prevented by a force-majeure event, has the burden to prove certain elements. These are:
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that the event was unforeseeable;
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that it has taken all reasonable steps to avoid or mitigate the effects of the force majeure event; and
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that the event was beyond its control and thus impossible to overcome.
Most importantly, there must be a causal connection between the force majeure event that made it physically or legally impossible to perform the contractual obligations. With the COVID-19 case, the affected party has to show that due to the outbreak of Corona-virus and its resulting governmental measures, no alternative measures exist for performing its duties under the contract.
Frustration
In case the contract does not include any force majeure clause, the affected party may attempt to excuse its failure to perform its contractual obligations under the doctrine of frustration. Subject to Section 56(2) of the Contract Law Cap.149, as amended, “a contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. As interpreted by Cyprus courts, section 56(2) is only applicable to an impossibility which destroys the foundation of the contract, which requires a high threshold for proof of frustration of a contractual undertaking.
Recommended actions
If you have executed a contract or are considering entering into new contract during this period, you should review the force majeure clauses carefully in order to understand the circumstances under which you can declare a force majeure and whether the Corona-virus outbreak and the resulting emergency measures may fall under its scope.
By Andria Kouloumi
Further, notification processes and deadlines should be also reviewed carefully, in order to ensure that your ability to claim force majeure protection is not precluded. Importantly, if you intend to enforce such force majeure clauses, you should consider your obligation to take all the reasonable measures to mitigate the effect of non-performance, otherwise your failure to perform your obligation may not be excused. If in doubt regarding how a force majeure provision applies and whether force majeure protection may cover you, it is recommended to seek legal advice prior to taking any action or sending notices.
Michael Kyprianou & Co LLC is ready to assist and advise you in relation to issues you may face, including by providing advice as to your options and requested objectives, enabling you to make an informed decision.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Andria Kouloumi, Associate, at Andria.Kouloumi (at) kyprianou.com
If you believe an article violates your rights or the rights of others, please contact us.
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- Uttam Galva Steels Limited - India
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- Antam Resourcindo - Indonesia
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- Aditya Birla Group - India
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- Parliament of New Zealand
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- Semirara Mining Corp, Philippines
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- Salva Resources Pvt Ltd - India
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- White Energy Company Limited
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- Samtan Co., Ltd - South Korea
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- Independent Power Producers Association of India
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- Australian Commodity Traders Exchange
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- Sarangani Energy Corporation, Philippines
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- Romanian Commodities Exchange
- Economic Council, Georgia
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- Neyveli Lignite Corporation Ltd, - India
- Energy Link Ltd, New Zealand
- Siam City Cement PLC, Thailand
- Goldman Sachs - Singapore
- Cigading International Bulk Terminal - Indonesia
- Ministry of Transport, Egypt
- The Treasury - Australian Government
- India Bulls Power Limited - India
- Ministry of Mines - Canada
- TeaM Sual Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Indo Tambangraya Megah - Indonesia
- Australian Coal Association
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- Orica Mining Services - Indonesia
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- Wilmar Investment Holdings
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- Bank of Tokyo Mitsubishi UFJ Ltd
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- Maheswari Brothers Coal Limited - India
- Global Green Power PLC Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Bulk Trading Sa - Switzerland
- Power Finance Corporation Ltd., India
- Minerals Council of Australia
- Thai Mozambique Logistica
- Sindya Power Generating Company Private Ltd
- GAC Shipping (India) Pvt Ltd
- Bahari Cakrawala Sebuku - Indonesia
- Kapuas Tunggal Persada - Indonesia
- PNOC Exploration Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Binh Thuan Hamico - Vietnam
- Dalmia Cement Bharat India
- ICICI Bank Limited - India
- Kaltim Prima Coal - Indonesia
- Cement Manufacturers Association - India
- IHS Mccloskey Coal Group - USA
- Jaiprakash Power Ventures ltd
- Edison Trading Spa - Italy
- Medco Energi Mining Internasional
- Energy Development Corp, Philippines
- Rio Tinto Coal - Australia
- SMG Consultants - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Coastal Gujarat Power Limited - India
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- Savvy Resources Ltd - HongKong
- Sakthi Sugars Limited - India
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- Barasentosa Lestari - Indonesia
- The University of Queensland
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- European Bulk Services B.V. - Netherlands
- CNBM International Corporation - China
- Attock Cement Pakistan Limited
- Petron Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Directorate Of Revenue Intelligence - India
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- PowerSource Philippines DevCo
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- Ambuja Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
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- Orica Australia Pty. Ltd.
- Bukit Makmur.PT - Indonesia
- Formosa Plastics Group - Taiwan
- Standard Chartered Bank - UAE
- Intertek Mineral Services - Indonesia
- Wood Mackenzie - Singapore
- Indian Oil Corporation Limited
- Indogreen Group - Indonesia
- New Zealand Coal & Carbon
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- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Authority, New Zealand
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- Holcim Trading Pte Ltd - Singapore
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- Lanco Infratech Ltd - India
- London Commodity Brokers - England
- Bayan Resources Tbk. - Indonesia
- LBH Netherlands Bv - Netherlands
- Madhucon Powers Ltd - India
- Leighton Contractors Pty Ltd - Australia
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- Kideco Jaya Agung - Indonesia
- CIMB Investment Bank - Malaysia
- Banpu Public Company Limited - Thailand
- Grasim Industreis Ltd - India
- Xindia Steels Limited - India
- Makarim & Taira - Indonesia
- Renaissance Capital - South Africa
- Offshore Bulk Terminal Pte Ltd, Singapore
- Billiton Holdings Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Vizag Seaport Private Limited - India
- International Coal Ventures Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
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- Global Coal Blending Company Limited - Australia
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- PTC India Limited - India
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