On 11 March 2020, the World Health Organisation (the “WHO”) declared the coronavirus disease or Covid-19 a pandemic, further urging countries to take drastic measures to contain the spread of the virus. We have seen that several countries, including the United States, Spain, Italy, France, Germany, and the United Kingdom, are experiencing the largest number of spread and deaths from the virus outside of China. This has prompted countries around the world to take drastic actions over the past weeks, resorting to lock-downs and the implementation of social distancing rules to contain the virus. Several legal questions arise on the consequences of imposing such measures, namely the issue of ‘force majeure’ and the possibility of using ‘force majeure’ as a nullifying quality. This article will provide an overview of Maltese law in this regard.
In Malta, at the time of writing, the positive cases have now increased to 399 with the first two cases in Malta only emerging a little over four weeks ago. Furthermore, the new cases being discovered daily are now all locally transmitted cases. The Government of Malta has issued several directives to ensure that citizens observe social distancing. Schools, colleges and universities were closed on 13 March 2020 and will remain closed for the rest of this scholastic year. Furthermore, all bars, restaurants, cinemas and other public places were closed as from 18 March 2020, with other businesses choosing to limit their normal working hours or providing their employees with remote working facilities. As from 23 March 2020, all non-essential shops were closed together with all non-essential services, further urging people to stay at home and exercise social distancing. Furthermore, social gatherings of more than three persons are now illegal with hefty fines being issued against anyone who is caught disobeying the orders.
Due to the above measures taken by the Maltese government, coupled with the travel bans and the subsequent closure of the Malta International Airport, a number of local business have raised their concerns due to the inevitable loss of income and possible lay-offs. Furthermore, as a result of such closure of businesses, disruptions in the performance of contracts is expected. The applicability of ‘force majeure’, or as more common under Maltese law ‘irresistible force’, in contractual obligations is an important element of law for business and individuals to factor in.
What is ‘Force Majeure’ or ‘Irresistible Force’?
Although Maltese law does not specifically define ‘force majeure’, case law provides a clear definition of what is required in order to successfully use ‘force majeure’ as a relief from contractual obligation. It may be defined as an unforeseeable circumstance which prevents a person acting with the due diligence of a ‘paterfamilias’ from fulfilling its obligations. Maltese courts have repeatedly held that the foreseeability needs to refer to reasonable probabilities and not to remote or extreme probabilities. Furthermore, it shall be noted that when the omission is partly a result of an action or omission of a person, the ‘force majeure’ element cannot be used.
The Maltese Civil Code refers to irresistible force linked to damages or obligations in two instances:
- Article 1029 of the Civil Code states that damage produced by a fortuitous event or in consequence of an irresistible force shall be borne by the person who suffered the damage, as the damage cannot be attributed to the fault of another person; and
- Article 1134 of the Civil Code states that a debtor will not be liable for damages if his omission to fulfill an obligation is a direct consequence of an irresistible force or fortuitous event.
Kindly note that in such instances, the burden of proofing the irresistible force will lie on the person claiming ‘force majeure’.
‘Force Majeure’ in contracts
Since Maltese law has a hybrid system of law, that is a mixed system consisting of both civil law and common law aspects, one cannot simply say that contracts which do not have a ‘force majeure’ clause cannot use it as defense for any omission of obligations of the contract as a result of ‘force majeure’. This is because the law itself, in Article 1134 of the Civil Code, specifically states that a debtor will not be liable for damages resulting from his omission to fulfill an obligation as a direct consequence of an irresistible force, and hence it comes out of the law.
However, several contracts, including lease agreements and contracts for the supply of goods and services, frequently contain such provision which provides for cases of inability to perform the obligations specified in the contract due to ‘force majeure’. It is also possible that in specific contracts, ‘force majeure’ is defined in a more specific way, limiting the use of the clause to specific events such as earthquakes, tsunamis, and other natural events, which clause may list exhaustively the only situations covered by ‘force majeure’ in terms of the contract. Due to the legal term ‘pacta sunt servanda’ in such instances where the contract provides for ‘force majeure’, the contract will be considered as law between the parties to the contract and it will apply.
Is the Covid-19 Pandemic a ‘Force Majeure’?
It is not possible to say as yet whether this pandemic will classify as a force majeure, especially since it would be dependent on several circumstances specific to each individual case. However, due to the severity of the pandemic as well as the unpredictable spread and halting of business, it is possible to argue that it could be considered as a ‘force majeure’.
As noted above, the wording of the contracts between the parties claiming ‘force majeure’ would play an important role in determining whether such pandemic will be considered as a ‘force majeure’. However, since case-law plays an important part in the Maltese legal system, we would have to wait to see how the courts will interpret the clauses in the Civil Code on a case-by-case basis.
What businesses should do?
Should you have any concerns in relation to any obligation you are entitled to receive in the coming months, we suggest that you conduct a review of your ongoing contracts to check whether provision is made for ‘force majeure’. As noted above, it may be possible that such clauses limit the definition of ‘force majeure’, thus limiting the possibility of the clause to extend to a pandemic.
Should you have any concern as to default of any obligation from your end, we suggest that you also review such contracts to ensure that if there are any clauses referring to the possibility of notification of delays or other processes in connection with the delay in providing services or goods or the possible default of providing such services or goods, you put yourself in order straight-away.
In relation to contracts already in force, we suggest negotiations are initiated with the respective parties to discuss the possibility of introducing extensions or grace periods should the need arise as a consequence of the on-going pandemic, especially since the consequences of such pandemic are still relatively unpredictable.