HIGHLIGHT OF HEADLINE LEGAL ISSUES ARISING
By: Adeola Owoade | Edidiong Umokaso | Nene Ichella
Section 1: Introduction
COVID – 19 is an infectious disease caused by
a newly discovered coronavirus, which has, in the last few months, commanded a
high degree of worldwide panic and recorded colossal fatalities. As there is
yet no vaccine or specific treatment for the disease, the disease is spreading
rapidly across the world and the number of deaths resulting from it are
multiplying. In view of the responsive steps undertaken by nations across the
globe to ensure survival and further curb the spread of the disease, it is
needless to say that COVID-19 may impact greatly on individuals and corporate
lifestyles in the coming days. From the index case of COVID – 19 in Nigeria
since 27th of February, 2020, several governmental policies,
regulations and safety precautions have been issued with far reaching legal
implications on businesses, employment relations, contracts, legal and civil
rights, statutory obligations and debt and payment obligations, amongst others.
In this Newsletter, we have highlighted a few legal issues arising from the effects of COVID-19 in Nigeria, ranging from its impacts on contracts and commercial obligations, civil and human rights, loans; debts and repayment obligations and employment relations, amongst others.
Section 2: Contracts And Commercial Obligations
- Several breaches of contract terms resulting from the Pandemic
The continuing spread of COVID-19 around the world will result in the breach and severance of contracts as the pandemic has made it impossible for some contract terms to be performed. The end of the pandemic will open the door for claims for several breaches of contracts and potential lawsuits seeking reliefs for the breaches.
- Claims for Legal Defences for Non-Performance
Parties will be seen as relying on several defences for the breaches, ranging from the legal defence of Frustration and contractual defence of Force Majeure. Frustration is a doctrine that sets aside contracts where the contract has become impossible to perform or where the strict performance of a contract would result in something radically different from what parties contemplated at the time of entering into the contract. The doctrine of frustration may operate to mitigate claims or discharge parties in breach of their contractual obligations.
- Legal Defence of Frustration
The Supreme Court has held in Standard (Nigeria) Engineering Company Limited & Anor v. NBCI  7 NWLR (Pt. 978) 198 that “if the performance of a contract depends on the continued existence of a state of affairs, then the destruction or disappearance of the state of affairs without the default of either of the parties will discharge them from the contract. Frustration, it is submitted only occurs under conditions that are totally out of the control of the parties”. It is clearly not in doubt that the outbreak of COVID-19 in Nigeria and the lockdown occasioned thereby will amount to a Frustrating Event within the contemplation of the law.
- Force Majeure Defence
The Court in Globe Spinning Mills (Nig.) Plc v. Reliance Textile Industries Ltd (2017) LPELR-41433(CA) has described force majeure as “something that is unexpected and unforeseen happening, making nonsense of the real situation envisaged by parties”.
A force majeure clause becomes operative when a party cannot perform its obligations under a contract because of an “act of God” or other unforeseen circumstance. It is worthy of note that force majeure does not operate by implication of the law but has to be expressly stipulated in contracts. It does not relieve the parties of their contractual obligations unless the parties expressly provided for same in their contract.
The party seeking to assert the force majeure clause has the burden of proving its applicability, including that the circumstances was beyond its control and without its fault or negligence. There must be an event which significantly changes the nature of the contractual rights of the parties that it would be unjust to expect the parties to perform those obligations.
The burden of proving a force majeure clause in the circumstance of the prevalence of COVID 19 is likely to be an easy task where the exact words used in the force majeure clause of a contract specifies outbreak of diseases, pandemic or “an act of God” as a force majeure event. The coronavirus pandemic presents extraordinary challenges and is sure to disrupt contractual relationships. It is also not in doubt that it being a disease is therefore certainly, an act of God. Parties should be ready to invoke, and defend against, force majeure clauses and related doctrines that may operate to excuse performance.
It is instructive to note that under English law (which is of persuasive effect in Nigeria) any force majeure clause which included language referring to events “beyond the control of the relevant party” could only be relied on if that party had taken all reasonable steps to avoid its operation or mitigate its results. This is the rule of interpretation.
The effect of a force majeure clause will depend on how it is drafted and its construction. Generally, its effect includes suspension of legal rights and obligations, exoneration of non-performing party’s liability for non-performance or delay in performance, termination without liability where there are no prior breaches by any of the parties.
It is instructive to note however that since the defence of force majeure is contract-based, a proper construction of the terms of the contract will be undertaken to understand if the alleged non-performance is occasioned by COVID-19 pandemic or other breaches. Also, where it is reasonably possible for the other party to have performed its terms of the contract, notwithstanding the epidemic, it is doubtful if a force majeure clause will avail such a non-performing party.
Section 3: Civil And Human Rights
- Lockdown and Restriction of Human Rights
The world has been constantly advised by experts and medical practitioners that the scale and severity of the COVID-19 pandemic may be reduced by social distancing and accordingly, several governments of the world including the Nigerian Government have begun to enforce strict lockdown prohibiting free movement, social interactions, religious gatherings and social gatherings. Some of these rules impair significantly on fundamental human rights as guaranteed by the Constitution of the Federal Republic of Nigeria, 1999 (as amended) and are reviewed in the following sub-sections.
- Lockdown, Quarantine and Self Isolation.
To prevent further spread of COVID-19, the Federal and several state governments of Nigeria had issued lockdown guidelines prohibiting mass interactions. Persons who have interacted with a confirmed case of COVID-19 or a returnee from a country where the pandemic is prevalent are quarantined or required to self-isolate for a period of up to 14 days while confirmed cases are isolated. The Lagos State Governor, pursuant to Section 8 of the Quarantine Act, Cap. Q2, Laws of the Federation of Nigeria, 2004 issued the Lagos State Infectious Diseases (Emergency Preventions) Regulations, 2020 to prevent and contain the spread of COVID-19 in Lagos. The Regulation provides for the powers of the Governor to order isolation of potentially infectious persons, restriction of movement in Lagos State, power to prohibit events and gathering of persons, power to order temporary closure of public places, power to restrict conduct of trade, business and commercial activities within Lagos, and to order closure of public, educational and vocational institutions within Lagos State. The President also took a similar step by signing the COVID-19 Regulations, 2020.
Section 35(1) and 41 of the Constitution provide that every person shall be entitled to his personal liberty and that every person has the right to move freely throughout Nigeria and to reside in any part of Nigeria and no Nigerian citizen can constitutionally be expelled from Nigeria or refused entry into Nigeria. In Okafor v. Lagos State Govt & Anor (2016) LPELR-1066(CA), the Court emphasized that “the right of freedom of movement relates to all corners, nooks and crannies in Nigeria”.
To every general rule however, there is almost always, an exception. The right to liberty guaranteed by the Constitution is not absolute. Section 35(1)(e) provides that the right to personal liberty may be deprived in the case of persons suffering from infectious or contagious disease, persons of unsound mind and so forth, for the purpose of their care or treatment or for the protection of the community.
Similarly, Section 45(1)(a) of the Constitution provides that the entrenchment of the right to freedom of movement shall not invalidate any law that is reasonably justifiable in a democratic society in the interest of defence, public safety, public order or public morality. We are not in doubt that the threat posed by COVID-19 and the restriction to movement occasioned by the lockdown imposed by governments, under Regulations made pursuant to the Quarantine Act, 2004, is a constitutionally allowed exception to the guaranteed rights.
- Ban on Social Gatherings
As a proactive measure to prevent the spread of COVID – 19, many State Governments, starting with the Government of Lagos State imposed a ban on social gatherings – clubs, bars, restaurants and social events. While Section 40 of the Constitution provides for the right to assemble freely and associate with other persons, Section 45(1)(a) on the other hand allows a legal curtailment of that right on the ground of public safety, public order and public morality. In Ukpabio v. N.F.C.B. (2008) 9 NWLR (Pt. 1092) 219 at 248 -249, the Court held that the right to freedom of association is not absolute where interests of defence, public safety, public order, public morality or public health are concerned.
- Ban on Religious Worships
Further to the need to prevent widespread of COVID-19 in Nigeria, places of religious worships were also banned momentarily. The initiative resulting in the ban on churches and mosques to hold religious worships is sequel to the need to prevent mass gatherings. As matters of religion typically evoke sentiments, restriction of gatherings of worship in churches and mosques by the Government were initially criticized by many as infringing on their right to practice their religion. Some people have even argued that their most preferred means of handling the panic caused by the COVID-19 crisis is by practicing their religion. There is no doubt that Section 38(1) of the Constitution, and Article 18 of the International Covenant on Civil and Political Rights, clearly established rights to freedom of thought, conscience and religion and freedom to manifest or practice one’s religion. However, we believe that the circumstances of COVID-19 and the issuance of Regulations aforesaid pursuant to the Quarantine Act, 2004 constitute a justifiable exception to this right, in the interest of public safety, public order and public health as contemplated under Section 45(1)(a) of the Constitution.
Section 4: Loans – Debt And Repayment Obligations
COVID-19 would likely trigger an Event of Default
The COVID-19 epidemic may turn to have huge effects on loan agreements and financing contracts; with colossal impacts on the repayment obligations of the borrowers and obligors. As a matter of standard practice, non-payment of repayment obligations and the occurrence of a material adverse change are principal events of defaults (EoDs) under any typical facility agreement or loan contract. A material adverse change is usually defined in such finance documents as any event (or any series of events) or circumstance which individually or when taken into consideration with any other facts or circumstances may result in a Material Adverse Effect (MAE).
MAEs are customarily defined as the occurrence of any event or series of events which in the opinion of the lender might have a material adverse effect on the business, operations, property, condition (financial or otherwise), or prospects of the borrower; or the ability of the borrower to perform its obligations under the finance documents; or the validity or enforceability of the loan agreement and the rights or remedies of the lender thereunder or the ability of the lender to enforce any of its rights under the agreement. It is therefore not in doubt that the pandemic may constitute a material adverse change as defined above. Thus, COVID-19 would most likely trigger an event of default in most finance documents.
The effect of the occurrence of an Event of Default is that the lender becomes entitled to the legal remedies contractually provided in the loan agreement/finance document. Such remedies typically include the right to stop further disbursements to the borrower under the agreement, the right to demand repayment of all or part of the loan amount and/or other amounts which have accrued and the right to take any steps to enforce any rights of the lender under the loan agreement, finance instrument and/or other security documents.
It is recommended that borrowers should consider if there are timely notices it is obligated to issue when there is a material adverse change, in order to ensure continued compliance with facility agreements. Even where there may be no express provisions requiring a borrower to give notice of a material adverse change, it is recommended that borrowers should take the first step in giving notices to lenders and third parties, of the material adverse effect caused by COVID-19 and initiate discussions on potential issues that may arise from same and how it may be addressed.
Section 5: Employment Relations & Issues
Possible termination of employments?
It is no more news that several businesses have been impaired and will seriously be impacted by the effects of COVID-19. The resultant effect is that some employers may be unable to continue payment of staff salaries as this becomes unsustainable due to the pandemic and accordingly, resulting to termination of the employment of some employees or treatment of the absence of employees as sick/unpaid leave.
The principal statute regulating employment relations in Nigeria is the Labour Act, Cap. L1, Laws of the Federation of Nigeria, 2004. Interestingly however, this piece of legislation does not apply to all forms of employees in Nigeria. Section 91 of the Act defines a “worker” as “any person who has entered into or works under a contract with an employer, whether the contract is for manual labour or clerical work or is expressed or implied or oral or written…”. Thus, outside the scope of the Labour Act are persons who exercise administrative, executive or technical or professional functions. The terms of the employment of this class are typically governed by their contracts of employment and applicable common law principles.
The general principle under Nigerian law of employment, as expressed in a plethora of judicial authorities, is that an employer has a right to terminate the employment of an employee for any reason or no reason at all, provided that terms and conditions for terminating as contained in the contract of employment, are fully complied with. However, there has been interesting legal developments in the case law. The National Industrial Court of Nigeria has held in Afolayan Aderonke v. Skye Bank (Unreported Suit No: NICN/IB/08/2015, delivered on 17 May 2017) that employers are required to give valid reasons for determination of contracts of employment. It is unsettled if this position represents the new legal trend in view of the fact that the Supreme Court authorities stating the contrary are yet to be overruled or departed from by the apex court and the doctrine of judicial precedent (where courts are bound by the decisions of the higher courts) reigns supreme.
Where an employer terminates a contract of employment with an employee in a manner that is in breach of the contract of employment, the employee may sue for wrongful termination of employment and the defaulting employer may be ordered by the Court to pay damages and/or compensation.
The option of unpaid leave on the other hand, depends on the contract of employment and the underlying company policies, employee handbook or other published policies of the employer. Where a contract of employment does not allow for unpaid leave, an unpaid leave would amount to a breach of contract.
No work, no pay?
As a general rule, an employer is under a common law duty to provide remuneration for work done by its employees, in accordance with the terms of the contract of employment. This general common law principle is qualified by the “no work, no pay” rule. Accordingly, the right of an employee to remuneration only accrues where he is found to be contractually in the right. Thus, Walton, J. in the English case of Creswell v. Board Revenue  IRLR 190 held that where an employee refuses to perform duties she is contractually obligated to perform, the simple principle of ‘no work, no pay’ applies and an action for wages is bound to fail. The principle of ‘no work no pay’ has been consistently adopted in Nigeria but typically in relation to industrial actions.
The ‘no work, no pay’ rule applies to situations where the employee deliberately refuses to work. It does not cover instances where the employee’s inability to work is occasioned by a force majeure event, such as COVID-19. In this regard, the salutary common law principle is that the employee’s consideration for wages is not actual work, but his willingness and readiness to work. Accordingly, barring any contrary provisions in the contract of employment between the employer and the employee, we are of the considered opinion that where employees are willing and ready to work or where the employer has instituted a work from home policy, the limitations to the performance of the employee’s work occasioned by lockdown or employee’s sickness resulting from COVID-19, will not disentitle the employee from receiving the agreed remuneration, in accordance with the terms of the contract.
Safety of Employees
An employer has a duty to provide safe, healthy and hazard-free work environment. Thus, where an employee has shown symptoms of COVID-19 or has interacted with a confirmed case of COVID-19, the employer has a right and indeed a duty to force that employee to stay at home and protect other employees. Where an employer refuses to allow such an employee to be absent from work, it may be liable to any other employee who has contacted the virus from the infected employee.
Significantly, employers are under legal duty to operate their businesses in a way that do not pose health risk or safety threat to all its employees and will therefore be liable for breach of employer’s common law duty and potential liability for negligence.
Section 6: Conclusion
The foregoing summarizes some of the interesting legal issues that have arisen or may arise as a result of the outbreak of COVID-19 in Nigeria. This Report does not lay claim to the exhaustiveness of all the relevant and applicable legal issues and may be revised in due course as other legal developments arise.
The above information is merely a Legal Guide on the legal challenges posed by COVID-19. It is not meant to substitute for an attorney’s advice or be relied upon as a Legal Opinion. If you require independent legal advice on any of the foregoing issues, please kindly contact a solicitor.
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