Saturday to Thursday: 09:00 - 17:00 / Saturday: 09:00 - 16:00

Careers |   Contact Number: 0096265540456

Dr. Ibrahim Amosh

April, 6, 2020

 

 

Introduction

Due to the outbreak of Covid-19 also known as the Coronavirus, some companies worldwide will potentially attempt to invoke force majeure clauses to curb their contractual liability in the face of the difficulties they are experiencing in performing their contractual obligations. In some countries, such as China, France and Iraq, the concerned authorities issued “Force Majeure Certificates” which recognize Covid-19 as a case of force majeure for companies who engage in contractual relationships.

The announcement of the French Minister of Economy made on February 28, 2020, whereby he considered Covid-19 as a force majeure event, has limited its application to contracts signed between private entities and the State’s public bodies. In light of the aforementioned, one could argue that applying such announcement on contracts between private sector entities is a matter that could only be decided by courts on case-by-case basis within the French jurisdiction.

The Chinese Council for the Promotion of International Trade issued a large number of force majeure “certificates” to local companies whose businesses were adversely affected, in response to the implications resulting from measures taken by the Chinese government to control and contain the spread of Covid-19.

The Iraqi government issued an order declaring the period of Covid-19 crisis as a force majeure circumstance for all projects and contracts as of February 20, 2020. The wording of the order may be interpreted (on the face of it) to include contracts signed with public bodies as well as those between private entities.

While those “force majeure” declarations, certificates or orders are most likely going to be recognized within the borders of the issuing State, they might not be recognized in disputes arising between local and foreign companies/states, where disputes are going to be heard in jurisdictions other than the courts of the issuing States.

In Jordan, no legal provisions are found that grant the Government the power to issue “force majeure certificates/declarations/orders. In our view, considering Covid-19 and/or the measures taken by the Government of Jordan to contain it, will be solely left for the courts to decide on

case-by-case basis. When tested before the courts, the latter will take into consideration the application of force majeure provisions found in the Civil Code No. 43 of 1976, provisions pertaining to the legal status of contracts under the Defence Law No. 13 of 1992 and the provisions pertaining to force majeure events usually set forth in contracts.

Relevant Laws & Judicial Decisions (Jordan)

  • Civil Code No. 43 of 1976
  • Article 205: If general exceptional events occur which could not have been expected and make the performance of contractual obligation, even if not impossible, onerous for the debtor so that it threatens him with heavy loss, the court has the power, in light of the circumstances and taking into consideration the balance between the interest of both contracting parties, to reduce the obligation to a reasonable extent if justice so requires. Any agreement to the contrary shall be deemed void.
  • Article 247: In contracts binding on both parties, if a force majeure has occurred that makes the performance of a contractual obligation impossible, the corresponding obligation of the other contracting party shall cease, and the contract shall be deemed rescinded. If the impossibility is partial, the corresponding obligation of the other contracting party shall cease. Same applies in case of temporary impossibility in continuing contracts, and in both cases the party affected by the force majeure may revoke the contract provided that the other party is notified”.
  • Defence Law No. 13 of 1992
  • Article 11: If it impossible to execute any contract or obligation due to compliance with this law or any order, designation and/or instructions issued accordingly, the person associated with this contract shall  not be considered to be in breach of  contract and the contract shall be deemed suspended  to the extent that the implementation of the contract is impossible. Such suspension shall be deemed as a valid defence in any suit that has been or is instituted against that person or any measures taken against him as a result of his failure to not perform his contractual obligations.
  • Court of Cassation Decision No. 805/2019
  • The Court emphasized, “force majeure in accordance with Article 247 of the Civil Code is an incident which could not have been foreseen and avoided”. Accordingly, it was held that an act of theft is not a force majeure event, as it could have been foreseen and avoided.
  • Court of Cassation Decision No. 1473/2016
  • The Court reiterated the principle referred to above (in 805/2019) and further established government orders are considered force majeure events that justify the application of Article 247.

Implementation of Art. 205 and 247 in the Absence of the Defence Law

In order to implement Article 205 of the Civil Code, the following conditions must be met: (i) the contract must be binding on both parties, (ii) the contract must have been entered into prior to the occurrence of the exceptional event and (iii) the exceptional event has to be general and not limited to the obligor (individual events do not invoke the application of this article; please see Court of Cassation Decision No. 805/2019), cannot be avoided, could not have been reasonably foreseen at the time of entering into the contract, makes the performance of the obligation burdensome for the obligor but not impossible and threatens the obligor with a heavy loss.

If the above conditions are met, the court has the power to  reduce the obligation to a reasonable extent if justice so requires, provided that the Court should take into consideration the special circumstances of the case and strikes a balance between the interest of the contracting parties.  It has to be noted that any agreement to the contrary is deemed void.

In order to implement Article 247 of the Civil Code, the following conditions must be met: (i) the contract has to be binding on both parties, (ii) the contract must have been entered into prior to the occurrence of the force majeure event, (iii) the force majeure event must make the performance of the contractual obligation impossible (i.e, there has to be a link between the event and the non-performance) and could not have been foreseen at the time of the conclusion of the contract, and (iv) the effects of the force majeure event cannot be avoided by appropriate measures.

If the above conditions are met:

  1. [Total Impossibility]: both parties will, by virtue of law, be released from their mutual obligations and the contract deemed rescinded.
  2. [Partial or Temporary Impossibility]: the affected party’s obligation that the performance of which became partially or temporarily impossible will, by virtue of law, cease and  the corresponding obligation of the other party will cease too. It has to be noted that any agreement to the contrary is deemed void.

The Defence Law

Due to the spread of Covid-19, the Defence Law No. 13 of 1992 came into force pursuant to a Royal Decree.  Article 2/a of the said law provides that “if something necessitates the defence of the homeland in the event of an emergency threatening national security or public safety in the Kingdom or any part thereof …. due to a war, … the spread of …. a pandemic, the implementation of this law shall be declared by a Royal Decree upon the decision of the Council of Ministers”. The Defence Law vested in the Prime Minister a wide range of powers including, but not limited to, issuing Defence Orders imposing curfew, closing schools, universities, factories, shops and restaurants.

As for contracts, Article 11 of the Defence Law makes it clear that if the performance of a contract or a contractual obligation becomes impossible due to compliance with the Defence Law or any order, designation and/or instructions issued thereunder, the affected contracting party shall not be considered to be in breach of contract and the contract shall be deemed suspended. The suspension, as per the said article, shall be to the extent that the implementation of the contract is impossible. Such suspension shall be deemed as a valid defence in any lawsuit that has been or is instituted against that person or any measures taken against him as a result of his failure to not perform his contractual obligation.

The Defence law is a special law. Its provision apply in the extraordinary circumstances set forth in Article 2/a thereof. Consequently, its provisions supersede and prevail over those of the Civil Code.  Therefore, we strongly believe that the court will tend to apply Article 11 of the Defence Law (on all contracts affected by the Orders and instructions issued by the Prime Minster) rather than Article 205 or 247 in the Civil Code. 

Conclusions

The Government has no power to issue force majeure certificates/declarations/announcements that Covid-19 is a force majeure event. Covid-19 (though declared a pandemic by the World Health Organization) has not adversely affected all businesses. To the contrary, some businesses have made and are still making a good fortune as of the spread of this virus (such as the masks and hygiene producing companies, the food and medicine delivery companies).

In principle, one could say that the mere outbreak of Covid-19 is not enough to invoke neither Article 205 nor 247. However, prior to the issuance of the Defence Orders, the courts will, one would say, tend to apply Articles 205 and 247 only on contracts affected by Covid-19. After the issuance of Defence Orders (imposition of curfew, self-isolation, closing of a wide range of businesses) the court shall apply Article 11 of the Defence Law being a special law.

The conditions of each one of those Articles must be met in order to be applied. The burden of proving the availability of those conditions is on the party affected by Covid-19, if it is to be considered, by the competent court, a general exceptional event under Article 205 or the force majeure event under Article 247. The government’s orders are deemed force majeure events pursuant to the Court of Cassation decision No. 1473/2016 and, thus, entitle the affected contracting party to invoke Article 247. But, one could argue that, this decision applies only in the absence of a Defence Law and Defence Orders.

Loan agreements, for instance, do not usually include force majeure clauses. Therefore, for all loan agreements, which are governed by, construed in accordance with the laws of Jordan, and entered into prior to the issuance of the Defence Orders due to the outbreak of Covid-19, the debtors may invoke Article 205 or 247 of the Civil Code to justify their non-performance. 

While, after the issuance of the Defence Orders, the debtors will seek the application of Article 11 of the Defence Law to justify their non-performance.  In loan agreements for example, as in any other agreements or contracts, the party affected by the Defence Order (e.g. curfew) has to establish that his obligation to perform the contract is adversely affected by the Order and that his performance has become impossible.

Basically, the obligation of the borrower is to repay the loan. But, if he managed to establish that his business has been hit by the Defence Orders (due to compulsory shut-down or the employees’ self-isolation or the curfew), and that his inability to generate income was due to those Orders, the courts will, most likely, decide that the loan agreement is suspended during the period between the date of the Curfew Order or the compulsory shutdown Order (as the case may be) until the date of its cancellation.

Dr. Ibrahim Amosh is the founder and managing partner of Amosh Legal Services & Arbitration, former Minister of Justice in Jordan and a holder of PhD in commercial law from the University of Edinburgh.