RIYADH: The coronavirus disease pandemic has raised numerous issues over the past year, including a big question among many business owners and the Saudi legal community — whether or not it is covered by force majeure.
Force majeure is a common clause in contracts, and is described as when an extraordinary event or circumstance, which is beyond the control of one or both parties, occurs and prevents the fulfilling of obligations under the contract, freeing them from liability or obligation.
“There exists two points of view: Whether the coronavirus pandemic constitutes force majeure or an emergency circumstance,” Dr. Osama Ghanem Al-Obaidy, adviser and professor of law at the Institute of Public Administration in Riyadh told Arab News. He added that the effect the pandemic had on contracts and agreements, whether commercial, financial, supply, construction or even a labor or employment relationship, must also be taken into account.
Al-Obaidy said the Saudi Supreme Court (SC) clarified the rules that lower courts must follow when considering such cases. The SC’s decision applies to disputes relating to contracts entered into before the onset of the pandemic, and excludes those where a government agency is a party, he added.
Under the SC rules, the courts will intervene where performance of a contract becomes practically impossible or if it cannot be implemented. In such cases, the court will treat the pandemic as a force majeure event.
So, for the courts to apply force majeure, it must be established that implementation of the contract or agreement becomes practically impossible, and not merely difficult, said Al-Obaidy, adding that emergency circumstances are applied if the performance of the contract or agreement becomes burdensome or causes a certain level of harm to one or more parties, but does not render the contract or agreement impossible to perform.
“The SC sets certain requirements that must be met, including: The contract having been entered into prior to the onset of the pandemic and the taking of precautionary measures; the contract and its implementation showing to have been directly impacted by the pandemic; the aggrieved party not having waived their contractual rights, and that the impact caused not (being) addressed by a separate law or decision by a relevant authority,” he said.
The issue of whether the pandemic is a force majeure or an emergency circumstance depends on the facts of the claim. Some businesses were impacted more than others; grocery stores and pharmacies, for example, were not much affected whereas other businesses such as entertainment venues, tourism businesses and the travel and hospitality sectors incurred substantial losses.
When deciding force majeure claims, the courts must consider the degree and percentage of the impact of the pandemic on each contract, which must be grave and unusual, and the harm or impact must also have occurred during, or as a result of, the pandemic, Al-Obaidy said.
He added that the instructions issued by the Ministry of Justice also required the parties to seek mediation and settlement before resorting to litigation in order to ease a possible clogging of court dockets with force majeure claims.
The best course of action for parties to take is to try to solve the matter amicably where each party bears part of the losses and avoids litigation, if at all possible, he added.