1. Navigating the supply chain in a distressed market:
a. My company supplies goods and I am concerned about the solvency of my customers. Are there any steps I can take to mitigate risk/my exposure?
Legal remedies available include:
- payment on delivery;
- reduced payment deadlines; or
- request for provision of (additional) guarantees, such as bank guarantees, notes, comfort letters or any form of debt acknowledgement.
b. My company relies upon the supply of goods/services and I am concerned about the solvency of my supplier? Are there any steps I can take to mitigate risk?
On the supply side, payment on delivery (or post-delivery) and avoidance of any pre-payments should be sought.
On the client side, commitments that may be hindered by a supply-side default should be avoided, by ensuring contracts limit or exclude liability due to underperformance of any third parties (such as suppliers).
Litigation and Regulation
2. How will legal disputes that have arisen as a result of COVID-19 or its effects (for instance, in relation to force majeure) be affected by restrictions being lifted and resuming business operations in whole or in part?
The first concern should be to ascertain in the contract whether it has any specific arrangements governing the subject – in other words, if the contract governing the business operations in question provides in some way for the resolution of these legal disputes, based on circumstances similar to COVID-19 or its effects.
In the absence of an express provision in the contract, recourse shall be had to the standard rules. However, this recourse to the standard rules will always depend on a case-by-case analysis of all the relevant facts, as there are several possible paths depending on the specific circumstances of each case.
If the impossibility of fulfilling the obligations underlying the legal disputes that have arisen as a result of COVID-19 or its effects is (i) objective, (ii) absolute, (iii) total and (iv) final, there may be a possible impossibility to fulfil, supervening, that is, an impossibility that arises from an event subsequent to the moment of the constitution of the obligation (i.e. the conclusion of the contract).
Otherwise, the impossibility of fulfilling the obligations underlying the legal disputes may be only partial (if only part of the benefit cannot be fulfilled) or only temporary, if the benefit cannot be performed temporarily.
3. How should you manage those disputes once COVID-19 restrictions are lifted?
After the restrictions are lifted, in view of the above, if the COVID-19 pandemic has not made compliance impossible (as described above), but has only made compliance more difficult or more costly for the debtor, they are obliged to comply and, if they fail to do so, they are subject to the legal consequences of non-compliance.
However, if the impossibility of compliance meets all the characteristics set out above, the debtor's obligation is extinguished, and they are released from performance.
4. What should you do when restrictions are lifted if you have suffered loss under a contract as a result of COVID-19 or the restrictions, but have not yet taken legal action in relation to that loss?
If the circumstances on which the parties based their decision to contract (the basis of the deal) undergo an abnormal change that subverts the economics of the contract, making it injurious to one of the parties, the latter has the right to terminate the contract or the right to modify this second judgement of equity.
If the parties agree, they may draw up an amendment to the contract (restoring the balance of the contract) or possibly conclude a preventive transaction to avoid a future litigation situation. If the parties do not reach an agreement, the exercise of those rights (of termination or modification) by the aggrieved party will normally imply the initiation of a legal action against the other.
If the aggrieved party opts for termination, the opposing party may request modification of the contract on the grounds of equity judgments.
The right to terminate or modify the contract, by supervening change of circumstances, depends on several assumptions:
- There must be a change in the circumstances on which the parties based their decision to contract.
- Only the circumstances existing at the time of conclusion of the contract and which were causal in relation to its conclusion are relevant.
- The change must result in an injury to one of the parties, generating a particularly serious imbalance between the parties' performance.
5. Is there any risk of mass claims being brought against your business? If so, how would such claims be brought? Are third party funders able to fund such claims?
Mass claims against a business are possible under the Angolan Civil Procedure Code. Therefore, the risk of mass claims depends on whether the requirements are met.
In Angola, it is not yet common to have third-party funding of claims, though this is not prohibited. The involvement of third-party funders is expected in the oil sector, namely for the recourse by the national concessionaire or its associates to third-party funding for the purpose of investment in petroleum operations.
6. What should I do about recording contractually or otherwise any of the changes put in place during the COVID-19 lockdown period?
Recording any changes to contracts should be a priority. The first option should be though an addendum or amendment to written contracts, but if this is too time-consuming or burdensome, other options, such as side letters or letters of understanding, should be considered.
7. Any return to normal will likely not be as immediate as the impact of COVID-19 when it started (e.g. sales/orders will take time to ramp up, raw materials will take time to flow through supply chains, etc.) what should I think about and do to best manage this in my contracts?
Regarding their customers, businesses should adopt a communication strategy as early as possible, providing updates on likely timing for delivery.
In the case of deliveries that depend on specific timings (after which the client definitively loses interest in the supply), Angolan law allows for the termination of the contract, so any such performances should be prioritised.
Regarding their suppliers, businesses should seek specific commitments and relevant penalties in case of breach, to at least ensure serious efforts – and, if possible, priority treatment – from those suppliers.
These commitments, ideally in writing, should mention the specific context of the supply, to make it clear these were taken in the specific context of COVID-19.
8. What additional protections or changes to existing provisions (e.g. force majeure) should I put into any new supply arrangements having regard to COVID-19?
In both customer and supplier/provider relations, COVID-19 should be acknowledged as a reality affecting any new agreements. Any new agreements should specifically acknowledge the current situation, and contain clauses designed to address the difficulties arising from it.
This material was prepared by DLA Piper Africa, Angola (ADCA)