COVID’s Devastating Effects on Businesses in Pakistan: Key Legal Takeaways

by Nancy Billard Digital Marketing Consultant

The severe lockdown to contain COVID-19 has had a huge impact on companies and trading around the world. As a consequence, corporations and Businesses have started to wonder what effect this pandemic would have on their legal rights and obligations.

Covid-19 and the judiciary

Notices were released by the Sindh High Court and the Lahore High Court stating that they would remain closed for all ordinary civil business until further notice and that only urgent criminal or civil matters would proceed. The High Court of Balochistan and Peshawar had given notifications stating that they and all subordinate courts shall remain closed for ordinary business until 28 March 2020 and shall only hear urgent cases. According to commercial lawyers in Karachi and around Pakistan, Companies, and corporations have increasingly begun to find ways to circumvent contractual commitments, and others have trouble safeguarding their rights. Force majeure is one of the defenses available to excuse non-compliance with the contractual obligations that have been affected by this pandemic and the associated lockdown.

Force majeure: Act of God

A force majeure clause mentioning an ‘Act of God’ often includes terms like an epidemic, plague, diseases, earthquakes, hurricanes, tornados, or floods. In Pakistani law, a 'force majeure' case has not been specified; however,' force majeure' has been defined by the Islamabad High Court as events outside the control of the parties, preventing one or both of the parties from fulfilling their contractual obligations. The Court recognized but did not limit, the scope of unforeseen circumstances to three forms of provision, including:

1) A provision providing for unexpected incidents such as conflicts, acts of God or certain strikes; in such situations, the party will be exempted from performing its contractual duties;

2) A provision providing for events outside the control of the party, such as earthquakes, floods, or acts of war; the affected party will be exempted from the non-performance of its contractual obligations arising from such events.

3) A contractual clause that renders it difficult or impracticable to fulfill the contract as a consequence of an incident that could not have been expected or regulated by the parties.

Legal Implications

In the light of the Coronavirus Pandemic, the idea of waiver of rights can play an important role in excusing non-performance or even forcing contract enforcement. Such a concept can only be used as a shield from prosecution. A party can waive its contractual rights, such as the right to terminate, the right to demand performance, or the right to claim liquidated damages, when dealing with counterparties only because the party provided assurance or failed to respond to the violation or failure to provide notice of non-performance. This 'inaction' could constitute a waiver of its rights.

Commercial Lawyers and their advice to the people affected

In conclusion, therefore, the invocation of force majeure clauses and dependence on the doctrine of frustration would depend on the terms of each contract in the current landscape of the COVID-19 novel coronavirus having been declared a pandemic. Courts will analyze whether the incident is expressly included in the provision of contractual force majeure and whether the party invoking the clause might have mitigated the damage, even if included, and that outcome is genuinely impossible. In deciding the invocation of the clauses or doctrine, courts may apply liberal standards of impossibility is given the unprecedented nature and scope of the pandemic. It is advised by the commercial lawyers in Karachi and around Pakistan that in every case, when the situation unfolds, it is essential for organizations to take all necessary measures to minimize harm and record the forms in which the fulfillment of contractual responsibilities is made entirely impossible.