By Oyetola Muyiwa Atoyebi, SAN
Our everyday life is governed by various types of contracts and agreements. Some are simple while others may be complex. However, given the dynamics of our world, owing to the occurrence of events that are beyond our reasoning, these agreements or contracts may be terminated, often without the fault of either party. This often leads to various questions such as “Who is to bear the loss? How can I prove that this wasn’t my fault? How can we prevent the occurrence of more issues like this?
To answer these questions, this article provides a detailed explanation on Frustration of a contract and the effect of the Covid-19 on Force Majeure clauses.
INTRODUCTION
Our everyday commercial life is governed by one contract/agreement or the other. In this dynamic world, certain events occur which makes it impracticable to fulfil one’s end of an agreement, often without the fault of either party to the agreement. In times past, this led to drawn-out litigation battles that ended with the defaulting party paying for damages over an event entirely beyond his/her control. This approach led to untold hardship for an innocent person who bore the pain.
It was in light of this that the Doctrine of Frustration arose. The doctrine arose to mitigate the loss of the innocent man, who has been rendered incapacitated from fulfilling the end of his contractual obligations, due to events beyond his control. Due to the daily evolution of our world as a result of pandemics, technological advents, natural occurrences, global warming, etc., there is a need to revisit the Doctrine of Frustration to apply the same logic in our ever-changing world.
WHAT IS DOCTRINE OF FRUSTRATION?
The Doctrine of Frustration of Contract has been defined by the Supreme Court in Nigeria, to mean a premature determination of an agreement between parties lawfully entered into, owing to the occurrence of an intervening event, or change of circumstances so fundamental as to be regarded by law both as striking to the root of the agreement, and entirely beyond what was anticipated by the parties when they entered into the agreement. [1]
In the celebrated case of NWAOLISAH V NWABUFOH (2011) LPELR 2115 (SC), the apex Court held that frustration occurs wherever the law recognizes that without default of either party, a contractual obligation has become incapable of being performed because of the occurrence of an event, which makes it radically different from what was undertaken by the contract.
This means that when an event happens that the parties to the contract did not envisage, imagine or assume in the slightest possible way could happen, actually occurs, then such a contract for all intent and purposes is deemed discharged by the happening of such an event. Frustration of contract is a defense available to a defendant who would otherwise be liable for breach of contract for non-performance of contractual duties, but for the occurrence of a fundamental event, striking at the very essence of the contract thus, making it impracticable to fulfil the contract.
It is paramount to note that the Doctrine of Frustration is activated when the event which is described as supervening is not reasonably foreseeable by any of the parties. The test for the Doctrine of Frustration is the uncertainty of the event. The moment the “frustrating event” is one which either party can foresee, the doctrine will not apply.
WHEN CAN THE DOCTRINE OF FRUSTRATION BE INVOKED BY A PARTY TO A CONTRACT?
In order for the Doctrine of Frustration to avail itself as a defense to a party seeking to hide from fulfilling its contractual obligations/duties to a contract, certain ingredients must be in existence to invoke the doctrine. It should be noted that the Doctrine of Frustration can be applied to any and every type of contract. [2] The key factor to note in invoking the Doctrine of Frustration is that a supervening event has occurred and same having not been contemplated by the parties to the contract, has fundamentally altered and changed the contract, making it impracticable to fulfil. The keyword in invoking frustration to a contract is the “Impracticability” of the contract due to the supervening event and same having occurred “without fault of either party to the contract”. The effect of frustration to a contract is that it kills the contract. It brings a contract to an end immediately, definitely and automatically. [3]
The Court before allowing a defendant to successfully hide behind the doctrine, must satisfy itself with the following:
A supervening event occurred as pleaded in the pleadings. The event was not contemplated by the parties. It was not as a result of either party to the contract. It has changed the contract ‘fundamentally’. It has made the fulfillment of the terms of the contract impracticable. In the application of the doctrine, the mere difficulty of carrying out the contract due to the supervening event does not automatically confer the application of the doctrine.
So, the question that remains to be asked is what kind of situations will not qualify as frustrating events? The Doctrine of Frustration will not apply where the supervening event, is one which the law would not regard as so fundamental as to strike at the root of the agreement. Secondly, the terms of the agreement reveal that the parties contemplated the possibility of such an intervening event arising. Finally, the doctrine will definitely not apply where one of the parties had deliberately brought about the supervening event by his own choice, as this will amount to deriving benefit from one’s illegal actions. This also implies that where a breach of the contract has occurred before the frustrating event occurs, the Court will treat the contract as having been breached and not frustrated.
When the defense of frustration is raised, the party relying on it has the onus to prove as gleaned from the principle of “Him who asserts must prove”. Similarly, the other side can also counter that the frustrating event does not suffice to warrant the Court pronouncing that the contract has been discharged.
Another means of defending one’s self against a plea of frustration is to prove that the supervening never actually occurred.
DOCTRINE OF FRUSTRATION AND FORCE MAJEURE
The Court of Appeal in Globe Spinning Mills Nigeria Plc V. Reliance Textile Industries Limited, defined Force Majeure as a common contract clause that provides that one or both parties can cancel a contract, or be excused from either partial or full performance of the contract agreement if certain specified events or events beyond the parties’ control occur. The Force Majeure clause in the agreement usually specifies the type of events which will be supervening enough to render the contract voidable. It has the same effect as a contract being frustrated. The difference however is that whereas Frustration brings the contract to an end, Force Majeure allows parties to contractually regulate the impact of the supervening event.
Naturally, if a Force Majeure event is not particularly covered by a contract, the injured party may claim Frustration of the contract. However, if a particular incident is clearly covered as a Force Majeure event under a contract, Frustration of the contract cannot be automatically asserted. The Force Majeure clause will merely suspend the doing of an obligation until a better time.
THE COVID-19 IMPLICATIONS ON CONTRACTS AND THE WAY FORWARD
The impact of the Covid-19 pandemic has been felt in every sector of human life. It is safe and right to assume that during the period when the country was on lockdown, many contractual obligations could not be carried out and as a result has birthed litigation issues. It is important to note that the occurrence of the Covid-19 pandemic falls within the “Unforeseeable” event. Irrespective of the foregoing, not all contracts were affected by the pandemic.
Not every type of contract could use the Covid-19 pandemic as a defense for their lack of contractual obligations because, in the case of some contracts, the pandemic was not sufficient enough to strike to the root of the matter.
Examples of contracts which would not have been frustrated by the COVID-19 pandemic include but are not limited to; Tenancy agreements, Leases, simple online contracts such as Web developers, Graphic designers, Copyrighters, Solicitors agreement, etc. However, contracts bothering on event planning, logistics, construction etc., would definitely have suffered due to the restriction on movement and outdoor gatherings. The pandemic is one of the biggest unforeseeable events of this 21st century. It, therefore, has become imperative that parties to an agreement must ensure that moving forward every form of vitiating event, occurrence or happening is included in the Force Majeure clause in a bid to save the contract from frustration and the consequences of who is to bear liabilities.
CONCLUSION
From the foregoing, it is evident that the mere occurrence of an event without more does not in itself avail a party from fulfilling their contractual obligation, as each contract is treated based on its peculiar fact and circumstance. Furthermore, there is a need for contracting parties to be guided by wisdom and a sound understanding of the law and peculiarity of the contract, in drafting their Force Majeure clauses in a bid to evade contractual breach.
As a result, contracts must be thoroughly scrutinized before contractual parties renege on their commitments due to Frustration or declare Force Majeure. Given the occurrence of the pandemic in 2019 and the lockdown of 2020, it would not be out of place if Force Majeure clauses are drafted with such future possibilities in mind, no matter how ridiculous it may seem.
AUTHOR: Oyetola Muyiwa Atoyebi, SAN.
Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm) where he also doubles as the Team Lead of the Firm’s Emerging Areas of Law Practice.
Mr. Atoyebi has expertise in and a vast knowledge of Corporate and Commercial Law and this has seen him advise and represent his vast clientele in a myriad of high level transactions. He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of a Senior Advocate of Nigeria.
He can be reached at atoyebi@omaplex.com.ng
COUNTRIBUTOR: Jedidiah Akpata.
Jedidiah is a member of the Dispute Resolution Group at OMAPLEX Law Firm. He also holds commendable legal expertise in Nigerian Contract Law.
He can be reached at jedidiah.akpata@omaplex.com.ng.
[1] 1 Mazin Engineering Limited v. Tower Aluminium (Nigeria) Ltd (1993) 5 NWLR (pt. 295) Pg. 526. See also. A.G Cross Rivers State V. AG of the Federation and anor (2012) LPELR-9335 (SC); NBCI V. Standard (Nig) Eng. Co. Ltd (2002) 1 NWLR pt. 768 Pg. 104; Gold Link Insurance Company Limited V. Petroleum (Special ) Trust Fund (2008) LPELR-4211 (CA) Pg. 9-10; Addax Petroleum Development Nigeria Limited V. Loycy Investment Company Limited & anor (2017) LPELR-42522 (CA).+
[2] In Araka V. Monier Construction Co (Nigeria) Ltd (1978) LPELR-531 (SC), the doctrine was applied to a leasehold contract, the supreme expounding further held that the doctrine of frustration is of general application and not only in commercial agreement.
[3] MARITIME NATIONAL FISH LTD. V. OCEAN TRAWLERS LTD