The unanticipated spread of the Novel Coronavirus (COVID-19), which has been declared as a global pandemic by the World Health Organisation (WHO) has brought the world to a screeching halt. Globally people could be seen observing social distancing, businesses and trade activities are plummeting and businesses are looking for new strategies to sustain and save cost burns. The government and regulatory bodies are trying their best to support and protect both the citizens and the economy from being impacted during this menace.
Similarly, the Government of the Kingdom of Bahrain has also been taking speedy measures to contain the spread of the disease and provide assistance to economy. Along with stimulus packages to aid impacted individuals and businesses the Government in the Kingdom of Bahrain also imposed – travel limitations, closed non-essential business, mandated quarantine requirements for travellers who visited from COVID-19 effected countries and social distancing regulations, took consumer protections measures by fixing maximum prices for safety essentials such as face-masks/disinfectants amongst others.
The term force majeure is a French term for “superior force” and refers to chance occurrences or unavoidable accidents (“Force Majeure”). As COVID -19 has led to economic crisis which could be seen as unforeseen circumstances beyond the control of contracting parties, due to which parties are unable to perform their contractual obligations, the same could still be argued before the courts of law to be considered as a Force Majeure situation and as a ground for granting excuse and/or suspension of performance of all or part of the contractual obligations thus, there lies a possibility for some lawsuits to be filed for recognising the COVID -19 caused economic crisis as the Force Majeure event in Bahrain as well.
Applicability of the “Force Majeure” provisions under the laws of the Kingdom of Bahrain
Applicability of a “Force Majeure” provision depends on the legal system of each jurisdictions. For example, in the common law systems (e.g. English law), they do not imply Force Majeure-type protection into contracts. Such protection must therefore, be specifically included in the contractual terms agreed between the parties for example with inclusion of specific Force Majeure clause in the contract. However, in certain civil law jurisdictions, there can be civil code provisions relating to extraneous circumstances that are implied into contracts. This is the case in the Kingdom of Bahrain, where the Civil Code of the Kingdom of Bahrain – Legislative Decree No.(19) of 2001 (the “Civil Code”) contains provisions that can entitle a party to certain relief from performance of their obligations in certain circumstances, for example, in the case of a Force Majeure event, natural disasters and sudden incidents.
Under the legal system of Bahrain, like most civil law countries, in case there is no specific provision of law or special law that is applicable to a particular situation/aspect, the judge is at liberty to make the decision on such matters. Such decisions of the judge are often based on the principles of Islamic Sharia, or guided by the best opinions in judge’s view of the situation of the country and its circumstance.
While the Civil Code of the Kingdom of Bahrain does not specifically define the term “Force Majeure” the principles are applied under some provisions. As under Article 130 of the Civil Code, when as a result of exceptional events of a general character, which were unpredictable at the time of entering into contract, the performance of any obligation becomes excessive onerous (if not completely impossible), and threatens to result in an exorbitant loss, the judge after taking into consideration the interest of parties, is allowed to reduce/limit such obligation by limiting its effect or by increasing its consideration. Article 130 also states that any agreement to the contrary is void, i.e. any agreement which imposes such onerous obligations and excessive loss threats on one party, will be considered as void under law.
Further as per Article 165 of the Civil Code, if a party could prove that the damage resulted from reasons beyond such party’s control, such as an unforeseen accident, Force Majeure or the fault of the victim or third party, then such person is not obliged to compensate the other party.
Thus, any party may approach the court of law in the Kingdom of Bahrain and request for the contractual provisions/obligations to be reconsidered, when such obligations becomes commercially burdensome and/or uneconomic due to any eventuality which was not stipulated at the time of execution of contract, and seek relaxation/excuse from performance of such obligations.
As the COVID -19 pandemic is an exceptional event which affects several business, Article 130 may be used by some parties where contractual obligations become impossible or burdensome and the very continuation of the contract is threatened directly as a result of Covid-19. A party may approach and request the judiciary to reasonably balance the interests of the parties to the contract and to ease the burden of their obligations. This balance may be amongst others (a) the termination of the contract; (b) allowing a grace period/extension timeline; or (c) any other circumstances/changes to contractual terms that a judge may in his discretion determine. As typically, the courts take a narrow interpretation in such cases, the parties before approaching the courts should ensure that they have served a timely notice to the other party informing them of inability in fulfilment of the agreed obligations; provide courts the clarity that there were no alternative ways to complete the obligations and that all reasonable steps to mitigate the effect has been exhausted.
While court may consider and provide approaching party some relaxation from performance of its obligations and/or from the payment of damages to the affected party. However, it is to be noted that the standard of proof in such claims is high and forensic focused, as well the decision is completely based on judge’s assessment of circumstances. As it has to be clearly established before the judge by the party, as to how any event – for example, in this instance global outbreak of COVID -19, is an unforeseeable event which is beyond party’s control and how it has made it onerous/impossible for the party to perform the agreed obligation or how it could lead to/threaten to cause them excessive loss or becomes burdensome on them. There must be a causal link between the Force Majeure event and the affected party’s failure to perform (i.e. the affected party must establish that the Force Majeure event must have caused the non- performance). If there are too many steps between the Force Majeure event and the non-performance, it will be difficult for the affected party to satisfy causation.
Thus, the impact of Force Majeure may be clear and evident and easily applied to certain cases (for example certain small scale business whose earnings predominantly depend on the earnings on daily basis such as restaurants); whilst in other cases (for example certain industries, whose production and sale may not be impacted) are much harder to apply by the courts of law. Each case will thus be considered independently of others, taking into account its own and current circumstances, facts, business, stakeholders and sector. As in certain cases only part of contract will be affected without impacting the remainder, in such cases excuse for only such part of affected obligation be granted and not termination of the agreement in toto to be considered by the parties.
With the continuous spread of COVID -19, it can’t be denied that overtime more parties will face financial and operative constrains to fulfil their obligations thus opening flood gates for litigations to surface. It will be best for a contracting party to consider the commercial consideration along with the legal parameters in reaching a mutual understanding, so that both parties’ interest could be satisfied, without the need to resort to the judiciary or judicial proceedings. This will also allow the parties to continue/end their relationship in a way that minimises damage, expenses or divides the obligations in stages to be carried out in the future, both in terms of time and costs, in the interest of the parties. The parties should also revisit their existing contracts and assess the extent they could be covered under the force majeure provisions or not (it is better to include a detailed list of events as Force Majeure events for sake of clarity also the degree of difficulty required to excuse or delay the contractual performance should be included in the clause) and if required new agreements/addendums to the original contracts could be entered. Parties should also consider to avail the benefit of business interruption coverage under existing insurance policies and if no such policy is in place for future purposes, such covers could be obtained to avoid financial liability.
This article does not constitute any legal opinion or advice and is prepared only for reference purposes for the readers.