Corona Virus – The Legal Implications

There is a need to bal­ance legal oblig­a­tions with sen­si­ble prac­ti­cal­i­ties, in a sce­nario which we haven’t real­ly seen before.”

COVID-19: bet­ter known as the coro­n­avirus has been the lat­est con­cern of many peo­ple around the world. We would not delve into the med­ical impact, the symp­toms or the ‘cure’ to such virus, but rather focus on the eco­nom­i­cal impact, the legal risks and pro­tec­tion mea­sures which may be tak­en by busi­ness­es.

The coro­n­avirus is not just a spec­u­la­tion. At the end of Jan­u­ary, the World Health Organ­i­sa­tion declared the out­break of the coro­n­avirus as a pub­lic health emer­gency. Since the out­break, wide­spread dis­rup­tion has been caused. You do not even have to jus­ti­fy whether such chaos is need­ed in an affect­ed coun­try, but mea­sures were/are being tak­en which led/are lead­ing to such dis­rup­tion.

From a legal per­spec­tive this means that force majeure claims may arise.

Force Majeure

Overview: Force Majeure relates to cir­cum­stances which are not fore­see­able, and which pre­vent some­one from ful­fill­ing a con­trol and/or oblig­a­tion. Legal­ly this means that in such instances, there can be a request for an exemp­tion from cer­tain oblig­a­tions. So, what do you get? – The right to object in cas­es of excep­tion­al cir­cum­stances.

When there is a con­tract, there­fore it might be claimed that it was impos­si­ble to per­form. A clause of force majeure func­tions to delay or absolve one or both par­ties to a con­tract of all or part per­for­mance of their oblig­a­tions on the man­i­fes­ta­tion of cer­tain events which are beyond their con­trol. Such events may include acts of God, nat­ur­al dis­as­ters, pandemics/ epi­demics, war, strikes and actions tak­en by gov­ern­ments.

So, the ques­tion that may arise here would be whether or not the coro­n­avirus will con­sti­tute a force majeure event. Hint: It Depends. The con­sti­tu­tion of a force majeure events depends on the rel­e­vant con­trac­tu­al lan­guage and under­stand­ing.

Arbitral termination of a contract

If the out­break of the coro­n­avirus con­sti­tutes a force majeure event under a work­ing con­tract, employ­ers could be faced with con­trac­tors, sub-con­trac­tors and sup­pli­ers, claim­ing they are enti­tled to invoke pro­vi­sions in their con­tracts and to sus­pend the per­for­mance there­of.

When it comes to con­tracts of work, Mal­tese Law, in par­tic­u­lar, Arti­cle 1640(1) of the Civ­il Code states that, ‘it shall be law­ful for the employ­er to dis­solve the con­tract, even though the work has been com­menced’.

More­over, sub-arti­cle (3), reads as fol­lows:

If the employ­er has valid rea­son for the dis­so­lu­tion, he is to pay the con­trac­tor only such sum which shall not exceed the expens­es and work of the con­trac­tor, after tak­ing into con­sid­er­a­tion the use­ful­ness of such expens­es and work to the employ­er as well as any dam­ages which he may have suf­fered’.

There­fore, the court has 3 reme­dies at its dis­pos­al which it can grant to the cred­i­tor:

  • autho­rise the cred­i­tor to car­ry out the pri­ma­ry oblig­a­tions itself, at the expense of the debtor;
  • order the debtor to ful­fil the pri­ma­ry oblig­a­tions itself; or
  • pay­ment for the dam­ages suf­fered, in terms of loss­es incurred and prof­its which could have been made had the oblig­a­tions been ful­filled.

If the con­tract con­tains cost pro­tec­tion mea­sures that relate to force majeure events, employ­ers could sim­i­lar­ly be chal­lenged with claims aris­ing from the effect of the out­break.

Depend­ing on the terms of the agree­ment, the affect­ed par­ty may be under an oblig­a­tion to mit­i­gate the effects of the event, sourc­ing mate­ri­als or work­ers from else­where.

Coronavirus – Claims for Force Majeure – Contracts

Coronavirus – Claims for Force Majeure – Contracts

The Chi­na Coun­cil for the Pro­mo­tion of Inter­na­tion­al Trade, which is a trade body found­ed in 1952 announced that it shall issue force majeure cer­tifi­cates. Such cer­tifi­cates may be used in legit­imis­ing claims for force majeure. The bur­den, how­ev­er, remains on the par­ty claim­ing force majeure.

Con­sid­er­ing the coro­n­avirus, this means that par­ty mak­ing such claim has the onus of proof in prov­ing that the coro­n­avirus falls with­in the word­ing of the con­tract and that the non-per­for­mance of a con­tract was a result of the out­break. Such par­ty needs to also show that there were no oth­er means to per­form its oblig­a­tions and that all rea­son­able steps were tak­en to ensure the per­for­mance of the con­tract.

What to do now?

As the coro­n­avirus dis­rup­tion is set to con­tin­ue all around the globe, com­pa­nies should now:

  • eval­u­ate all con­tracts in which force majeure may be a rea­son – whether used by or against a com­pa­ny;
  • con­sid­er time lim­its and notice for using a force majeure clause;
  • con­sid­er pos­si­ble alter­na­tive ways to per­form con­trac­tu­al oblig­a­tions and take appro­pri­ate mit­i­ga­tion steps;
  • col­lect all evi­dence of dis­rup­tion, includ­ing doc­u­ments prov­ing delay / can­cel­la­tion;
  • when and if enter­ing into new con­tracts, claus­es should suf­fi­cient­ly cov­er even­tu­al­i­ties such as the coro­n­avirus out­break; and
  • con­sid­er whether insur­ance cov­er applies.

Conclusion (and a Tip for your Company)

Yes, as an employ­er you should be con­cerned about pro­tec­tive mea­sures which your com­pa­ny can take to pre­vent any sort of virus and not only the coro­n­avirus, such as giv­ing advice to the employ­ees to clean and dis­in­fect fre­quent­ly touched objects and sur­faces or to wash their hands often. It might sound obvi­ous, but this is an impor­tant rou­tine for every com­pa­ny. How­ev­er, legal­ly, as a com­pa­ny you should take care of your con­tracts and seek advice to min­imise the impact of the out­break on your com­pa­ny. In Mal­ta, we might see such sit­u­a­tions as being far­fetched how­ev­er, the coro­n­avirus is a con­cern for many peo­ple around the world, and not only because of its med­ical impli­ca­tions but also of the legal impli­ca­tions there­of.

Dis­claimer: The above-men­tioned arti­cle is sim­ply based on inde­pen­dent research car­ried out by Dr. Wern­er and Part­ner and can­not con­sti­tute any form of legal advice. If you would like to meet up with any of our rep­re­sen­ta­tives to seek fur­ther infor­ma­tion, please con­tact us for an appoint­ment.

About Dr. Rebecca Mifsud

Dr Rebec­ca Mif­sud, born 6th May 1994, attend­ed the Uni­ver­si­ty of Mal­ta and is an LLB Hon­ours grad­u­ate. She also grad­u­at­ed in the Mas­ters in Advo­ca­cy and will be sit­ting for her Mal­ta War­rant Exam in 2019. She suc­cess­ful­ly defend­ed her dis­ser­ta­tion enti­tled: ‘Imput­ing respon­si­bil­i­ty for foot­ball injuries inflict­ed by minors in the Mal­tese sce­nario,’ in 2017.

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