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COVID-19 and its Current Impact on Contractual Obligations. TV Production and Acting Contracts in Egypt and the UAE as an example

Published: 22/04/2020

1. Introduction:

The most pressing issue in the worldwide legal community today is the impact of the spread of Corona (COVID-19) Virus which has been recently classified by the World Health Organization as a worldwide pandemic (the “Pandemic”). The matter which resulted in partial or complete closure of the economy in most of the world countries depending on the circumstances. The international efforts have, therefore, combined to contain this Pandemic which in terms of its rapid spread implications on health, economic and legal activities are unprecedented. As we all hope that this Pandemic disappear and be contained soon, the legal implications of this incident on various legal and contractual relations, which have begun to appear in succession, will not easily disappear.

In this article, we discuss with some analysis the effects of this Pandemic on contractual relations in general and its impact on TV production and acting contracts in particular. With the spread of the Pandemic, officials worldwide continue to urge people to stay indoors and limit movements while encouraging ​social distancing and imposing, in many cases, home quarantine measures. Many economic sectors have been negatively affected while others are experiencing growth, including the TV industry with its TV serials, advertisements and home movies, with broadcast networks seeing viewership spikes. TV production is slated to draw huge ratings, especially during the upcoming holy month of Ramadan, when they typically go up. In parallel with these trajectories, the Pandemic comes with a host of warnings and implications which create various obstacles against the performance and production of TV serials, Ads and otherwise.

What, then, are the rights of contracting parties, from production companies, personnel, actors, and others, in the light of these circumstances and implications and, in particular, the disputes which may arise between them.  Some parties take the view that the artistic work should be completed in order to generate earnings from airing the TV content, be it a serial, Ad, or otherwise during the upcoming month of Ramadan, given the unprecedented ratings which are expected. Others prefer that contracts be suspended and shooting and technical operations halted until the health warnings associated with the Pandemic have subsided.

 

2. Force Majeure, Its Criteria and Effects:

Egyptian and UAE laws provide an almost identical application of force majeure events and their impact on contractual obligations. Article 159 of the Egyptian Civil Code provides “In binding contracts, if an obligation is extinguished by reason of impossibility of performance, all counter obligations will cease and the contract will be automatically terminated.” Article 273(1) of the UAE Civil Transactions Code provides: “In binding contracts, if a force majeure event supervenes that renders performance of the obligation impossible, the counter obligation will cease and the contract will be automatically terminated.”

Supreme courts’ rulings in both jurisdictions typically deem an event to constitute  force majeure in the legal sense if it is “unforeseeable and unavoidable and makes proper performance  of the contractual obligation impossible.”[1]-[2] An event that is unforeseeable at the time the contract is made would suffice even if it thereafter becomes foreseeable prior to execution.

The test here is an objective rather than a subjective one. The event must be unforeseeable and unavoidable, not by the obligor alone, but by any other person in the obligor’s position. The standard varies a bit in each court. UAE courts apply the “Ordinary person”[3] standard whereas the Egyptian courts apply the higher standard of “A perspicacious and prudent man“[4] when considering whether the event was unforeseeable.

A valid force majeure event terminates the contract by operation of law under the Egyptian Civil Code and the UAE Civil Transactions Code, if the force majeure makes performance of the contractual obligations absolutely impossible. However, under 273(2) of the Civil Transactions Code, “In the case of partial impossibility, the impossible part of the contract would be discharged. The same is applicable for the case of temporary impossibility in continuing contracts.” The contract is not automatically terminated in the case of partial impossibility (in the sense that it is impossible to perform part of the contractual obligations) or in the case of temporary impossibility (in the sense that it is impossible to perform the contract for a period of time in continuing contracts such as a lease). In the absence of statutory provisions governing issues of partial and temporary impossibility, the same approach has been adopted by the Egyptian Courts.[5]

 

3.The Doctrine of Intervening Contingencies:

This deals with legal situations where contracting parties are faced with an exceptional and unforeseeable event of a public nature which, while making the performance of the obligor’s obligation more onerous as to threaten him with a severe loss, it does not render performance of the contractual obligation impossible.

The Egyptian Civil Code and the UAE Civil Transactions Code both offer close variants of this doctrine[6] where provision is made, in an exceptional and unforeseeable event of a public nature which makes the performance of the obligor’s obligation more onerous as to threaten him with a severe loss, for the judge to intervene and lessen the onerous obligation to a reasonable limit and thereby restore the economic balance of the contract.

 

4. Does the Pandemic qualify a force majeure event?

It is our view that the Pandemic is most likely to satisfy the first condition of a force majeure (e.g. is not foreseeable) as long as the parties have entered into the contract a sufficient time before the COVID-19 virus news, not only the declaration of the Pandemic by the WHO, have been known to the parties.

The second condition (unavoidability and impossibility of performance) may not be met with respect to all contracts as the effects of the current Pandemic depend largely on the precautionary measures which governments take to protect public health.

Some countries have gone into full lockdown that has rendered the performance of many obligations impossible, albeit largely temporarily given the nature of the Pandemic which is hopefully expected to end after a period of time, while many other countries have not yet implemented a complete shutdown of economic activity.

In nutshell, the current Pandemic, at present, does not always constitute a force majeure. Every case must be individually assessed in the light of the aforementioned considerations to determine whether the outbreak of the Pandemic would qualify as a force majeure event that discharges obligations, in whole or in part, due to a complete, partial or absolute impossibility of performance or an exceptional event of a PUBLIC nature, as contemplated by the doctrine of intervening contingencies, where the judge may intervene to lessen the onerous obligation to a reasonable limit and thereby restore the economic balance of the contract, or neither case. All of this should, in our view, be determined for each contractual relationship after a careful consideration of its particular circumstances and conditions.

 

5. Effects of the Covid-19 Pandemic on TV Production and Acting Contracts in Egypt and the United Arab Emirates.

As previously mentioned, the classification of the Pandemic from a legal perspective and its impact on contractual obligations varies from contract to contract and even from place to another.

The reality on the ground in both Egypt and the UAE is that they are not yet in full lockdown which means that it is not entirely impossible, in principal, from the standpoint of physical or legal considerations, to perform many contracts.

However, the situation differs between Egypt and the UAE in relation to TV acting and production contracts for serials, Ads, and otherwise. Whilst it is still practically possible to perform such kind of contractual obligations in Egypt, we understand that shooting/location permits are not any more granted during this time in the UAE.

Moreover, although some TV production contracts were signed before the start of the Pandemic, a significant number of such contracts were signed following its emergence which means, too, that, at present, there is no general rule for judging what is unforeseeable in relation to this type of contracts.

As to the UAE situation, given the current halt in granting permissions for shooting and cast locations, it is likely that the Pandemic constitutes a temporary impossibility to perform the contractual obligations arising out of TV production and acting contracts. The implications of such temporary impossibility is that:

  • In the event that the TV acting/production contract is signed a sufficient time before the COVID-19 situation begins, the Pandemic will be likely considered as unforeseeable event and accordingly qualifies a temporary force majeure that will not automatically terminate the contract by operation law but only suspend the performance of the obligations for a certain period, according to Article 273.2 of the UAE Civil Code, till such Pandemic ends or at least the shooting permits are granted again.
  • In the event that the TV acting contract is signed after the COVID-19 situation has begun, the Pandemic will not likely be considered as unforeseeable event and accordingly may not qualify a temporary force majeure. Nevertheless, there will be still a temporary impossibility to perform the contractual obligations, but the obligor will be legally held liable for such delay in performing his obligations and any damages may be suffered by the obligee.

As to the situation in Egypt, although there is no official halt on giving permissions for shooting locations and so it is still possible to perform obligations arising out of TV production and acting contracts, “abuse of rights” is an important consideration to bear in mind

The performance of TV production contracts for serials, Ads, etc. could make it difficult to implement and comply with health guidelines and directives related to the current Pandemic such as (1) social distancing; (2) avoiding mass gatherings; and (3) stay at home recommendations. The production of a TV series, for example, revolves around conceptual realities which are far removed from ground realities and may even be set in a different time period and era. It therefore becomes inherently difficult, even counterintuitive, to adhere to general health directives related to social distancing and crowd avoidance.

An abuse of rights situation may emerge when insisting on the performance of some of these contracts in spite of the current Pandemic, which is a concept enshrined in the Egyptian legal systems, and also the UAE, as follows:

Article 5 of the Egyptian Civil Code provides: “The exercise of a right is considered unlawful in the following cases:

  1. If the sole aim thereof is to harm another person;
  2. If the benefit it is desired to realize is out of proportion to the harm caused thereby to another person;
  3. If the benefit it is desired to realize is unlawful.”

The preliminary draft of the Egyptian Civil Code states: “This choice of approach was facilitated by Islamic law’s recognition of the doctrine of abuse of rights as a general doctrine and its codification as part of Islamic jurisprudence.”[7] Therefore, “the division and ranking of interests, by order of importance, in Islamic jurisprudence may be used as guidance. Interests are divided by rank into three types, the first being necessary interests, namely acts and dispositions that are essential for matters of faith and life i.e. the preservation of religion, self, intellect, lineage, and wealth. Where there are conflicting interests involving these five necessities, the interests of religion shall prevail over the interests of self, self over intellect, intellect over lineage, and lineage over wealth. Through these divisions emerged such fundamental maxims of Islamic jurisprudence as harm shall be made good, the greater harm is removed by a lesser one, a specific harm is tolerated in order to prevent a more general one and warding off evil takes precedence over the doing of good”.[8]

Considering the above, we take the view that, before proceeding, at present, with the performance of TV production contracts for serials, Ads, and otherwise in Egypt or elsewhere, due account should be taken of the above legal principles on abuse of rights and the overriding importance of warding off evil compared to the doing of good. Since the performance of such contracts will likely interfere with the observance of measures and warnings in response to the Pandemic, particularly with regard to overcrowding, mixing, and social distancing, the contracting party, who insists to perform these contracts and compel the other party to do so despite such general and exceptional circumstances, may fall foul of the law and be held liable for any material or moral damages such as, God forbid, a Covid-19 infection, in addition to any associated financial costs, moral damages and bodily injury.

To conclude this legal article, we would like to make a general appeal for parties involved in contractual relationships to take account of the health and security measures and warnings which governments and countries have introduced in the wake of the current Pandemic and to accord critical importance for the same during the performance of contractual obligations. Such measures and warnings should take precedence over any benefits or gains which contracting parties stand to realize from the performance of contractual obligations, even if such benefits are forfeit or deferred, for two main reasons: 1) protecting the public interest inherent in ending this Pandemic and containing it until it has passed; and 2) protecting the private interests by avoiding legal violations which could have undesirable effects and repercussions, whether at civil law based on the doctrine of abuse of rights or at criminal law for endangering the lives of others which is another topic for another article.

 

Al Tamimi & Company’s litigation and arbitration teams regularly advise on arbitration related issues. For further information please contact Mosaab Aly (m.aly@tamimi.com).

 

 

[1] Dubai Court of Cassation – Cassation No. 497-2017 [Civil] – 04.01.08.

[2] Egyptian Court of Cassation – Cassation No. 677 of JY 69 – 10.04.12.

[3] Dubai Court of Cassation – Cassation No. 1084-2019 [Commercial] – 15.01.20.

[4] Egyptian Court of Cassation – Cassation No. 677 of JY 69 – 10.04.12.

[5] Egyptian Court of Cassation – Cassation No. 865 of JY 53 – 30.01.91.

[6] Article 147 of the Egyptian Civil Code and Article 249 of the UAE Civil Transactions Code.

[7] The preliminary draft notes that discuss Article 5 of the Egyptian Civil Code.

[8] Al Taqnin Al Madani Fi Dawi’ Al Fiqh Wal Qada’ – Masadir Al Iltizam [The Civil Code in Light of Jurisprudence and Juridical Practice – Sources of Obligation], at 421, Mohammed Kamal Abdel Aziz.