Lebanon - 20/03/2020
by Lana Fadel, Deputy Head of Legal Knowledge at SADER Legal
As the spread of the coronavirus continues to grow, many have developed health anxieties worldwide. However, fears have not only been related to health, but it appears that the coronavirus has much greater consequences, particularly legal ones. This article will focus on the legal implications of the coronavirus on Lebanese businesses.
Lebanon has confirmed 60 COVID-10 positive cases, and the number is on the rise. What does that mean for companies in Lebanon? Some may find themselves facing supply chains disruptions, some may also face interruptions regarding their contractual obligations, travel restrictions may get in the way, cancellation of events, and even force majeure instances have been documented both regionally and internationally due to the coronavirus; all in which could lead to legal allegations.
However, when it comes to cancellation of events or force majeure there are certain things that simply cannot be overlooked as cancelation and force majeure occurrences are usually merged, and include contractual obligations that may bind your or the party to reconsider.
In accordance with the Lebanese Labor Law, article 50 states that: “An employer may terminate some or all the employment contracts in the company in an organization where a force majeure or economic or technical circumstances require such termination. This can be done through reducing the size of an organization, replacing a production system with another or eventually shutting down.” For issues pertaining salaries, the code referred to in Lebanon is the obligations and contract law. This is in fact not completely bizarre to Lebanon. An emergency occurrence such as the one we’re facing at the moment has been witnessed before in 2006 during the Lebanese-Israeli war where Lebanese companies were faced with major complications. It was decided at the time that a termination of contract can only take place if it is certainly impossible to take effect, which shall be subject to the court’s decision.
In the event where a cancellation of an event takes place due to the coronavirus outbreak or whether an employee has been faced with force majeure amid the virus, the first step would be to take close look at the signed contract and examine its clauses. Although having an epidemic clause in the contract is usually very rare, the issue is subject for interpretation based on relevant wording in the contract. Albeit, when it comes to force majeure clauses, if the contract isn’t holding related provisions, then the matter would be dependent on the governing law of the contract.
A force majeure clause is always usually found in a contract signed by two parties which describes the contractual term involved that could be discontinued due to several reasons such as: malperformance, breach of contract, exceeding the set duration, or cancellation of the event. However, as the force majeure clause is interpretable, it solely depends on the case. it is significant that you look into:
- Emergency clauses
- Government decision interference/Change in Law
- Delay in compensation
- Extended periods
- Notice requirements
There are many other points that could be taken into consideration, it would be advisable that you have an expert look into the matter.
Prior to cancelling an event, try to look into alternatives that would perhaps cost you less legal implications that may be enforced once clauses have been breached. Have you considered postponing the event perhaps? The world is witnessing at the moment the possibility of postponing several events such as the Olympics games which will be held this July in Tokyo and many other events which have been postponed rather than cancelled until further notice, all caused by the Coronavirus outbreak. Some simply cannot afford cancelling an entire event and that is absolutely understandable given the consequences that follows. Therefore, try to look into alternatives before jumping into a conclusion that will cost you financial difficulties.
Financial difficulties arising from a cancellation of an event is undoubtedly an issue that every Lebanese company and individual would rather evade, especially if the cancellation may result in insolvency and affect your stakeholders. Therefore, key issues that every company in Lebanon should consider involve proactively engaging with your stakeholders such as creditors, in order to re-negotiate the terms of the contract to avoid continued losses and keep the business going. This process is usually called the waiver of the contract rights or forbearance. It is also important for financiers to understand the situation as well as they may not want to finance for long, therefore engaging with them is crucial. Additionally, stakeholders such as suppliers and customers cannot be overseen as their involvement strictly relies on the terms of contract signed. It would be their prerogative as to whether or not they would be willing to protect your company’s financials.
That being said, how you communicate with your stakeholders and your relationship with them is what determines the flexibility of their willingness to help out in an outbreak such as the coronavirus. It is not always strictly financial and it does not always lead to legal implications. However, a lot of times it does and managing the risk of litigation in times of crisis is definitely not where you want to take your company. Try to look into alternatives, have a lawyer analyze your contract and develop a legal strategy, protect yourself by having proper procedures in place in the case where one of your stakeholders is not willing to compromise.