What impact could COVID-19-related events have on my contractual arrangements?

In order to assess the impact of any COVID-19-related events on your contractual relationships you should first check whether the contract already provides for solutions regarding this type of event (e.g., force majeure clauses that cover epidemics, change in circumstances clauses, clauses for the suspension or extension of deadlines in light of non-attributable events, hardship, etc.).

As part of any standard interpretation of a contract, even if there the contracts include clauses foreseeing specific solutions for those events, you should always check whether those solutions are valid under the law applicable to the contract, in an exceptional and emergency scenario such as the current scenario. The applicable law shall determine the legal regime to be considered both in the interpretation of the Agreement and in the search for legal solutions not covered by the contract, such as the legal framework for changes in circumstances or impossible performance.

 

What are my rights if, on account of COVID-19 events, I am prevented from performing my contractual obligations?

If my contractual obligation cannot be definitively performed, Mozambican law foresees the expiry of such obligation due to impossibility, provided that the causal link between the COVID-19 event and the impossibility to perform the agreed obligation is duly demonstrated.

If, on the other hand, my contractual performance is only temporarily impossible, and the performance deadline is just delayed, Mozambican law also foresees that the debtor will not answer for the consequences of the delay.

These effects are not effective automatically but are predicated on the specific situation at hand. Besides, they always require solid evidence, and therefore it is advisable, as a cautious manner, to keep adequate supporting documentation should the need to claim an objective impossibility to perform arises.

 

In those instances, is there a duty to compensate the other party?

If my contractual obligation becomes impossible, I am under no obligation to compensate the other party. But if the other party has already performed their obligation (e.g., payment of the service) I need to return such payment or if return is not possible, compensate the counterparty.

 

Could I allege that my obligation has become excessively burdensome in order to be excused from its performance?

Theoretically it is possible (e.g.: the price set for my service has become ruinous in light of the changes caused by the COVID-19 to the distribution chain), alleging that the circumstances in which the parties decided to enter into the contract have changed. However, the validity of such allegation is predicated on the assessment of the relevance of the event for the performance of the contract, the risks inherent to the contract, the specific provisions of the contract and the equity of the measure.

Any solution will always be grounded on the ability to prove the facts that modified the original circumstances underlying the contractual terms and ultimately the equity and balance of the solution.

 

Can I claim COVID-19-related facts that affect my supplier to justify breaching any contracts in place with third parties?

If my contractual obligation becomes impossible or excessively burdensome following a chain default (e.g.: I cannot perform because my key raw materials’ supplier fail to supply them due to the shut down by an administrative order of its factory) Mozambican law states that, provided that some requirements are met, the obligation may expire in the same terms as described above. In any case, it will always be required to prove the causal link.

 

How can I react to my clients’/suppliers’ default if they justify the default based on COVID-19-related events? Can I claim loss of interest in the obligation and terminate the contract without compensation?

Yes, this is possible in certain cases (e.g., I ordered a certain product from a company, which claimed it could not deliver the product because its supplier had temporarily or definitively shut down its factory). Loss of interest in the obligation is foreseen in Mozambican law as is the option of terminating the contract as a result of said loss of interest, without compensation and being able to demand the return of any obligation already performed.

Notwithstanding and as mentioned above, the review of the specific contract and the relevant documentation in place between the parties is crucial to this conclusion.

 

__________________________

This information is being updated on a regular basis.

All information contained herein and all opinions expressed are of a general nature and are not intended to substitute recourse to expert legal advice for the resolution of real cases.