Coronavirus and Agreements in Cyprus

by | Mar 4, 2020 | Cyprus Companies, The Cyprus Lawyer

Coronavirus and agreements in Cyprus aim to consider the business and contractual risks faced by Cyprus based business and entrepreneurs when estimating the unprecedented effect and impact of the coronavirus (Covid-19) to the global and national environment.

Until the day of writing this article, a coronavirus confirmed case has not been identified in Cyprus.

Nevertheless prudent business and entrepreneurs must evaluate the type of risks the business faces as well as the likely impact these risks will have to the business, suppliers and customers. Such a risk review needs to start from:

  • The agreements currently in place
  • Understanding the future obligations based on those agreements
  • Analysing scenarios and instances of breach of agreement
  • Effectiveness of force majeure clauses

Furthermore interesting to note is the extend of directors liabilities, due to insufficient actions or even no action taken to mitigate a possible widespread coronavirus outbreak in Cyprus.

Coronavirus Effect to Agreements in Cyprus

The reviewer should take an objective approach towards reviewing the entire spectrum of legal agreements currently in place between the business and third parties.

Third-party should be understood as being anyone other than the company. Please be reminded that the company is a separate legal personality as described further in previous publications.

In substance, this could be, but is not limited to, employee, director, shareholder, financing, rental, supplier and client agreements.

Obligations and Rights Resulting from Agreements affected by Coronavirus

When the Cyprus company’s contractual obligations are identified and available for review, the reviewer should take a subjective approach and examine whether:

  • Each agreement includes obligations which would liable the business for none performance
  • Each agreement includes a force majeure clause
  • The force majeure clause is well defined to capture the coronavirus outbreak in Cyprus and globally (discussed further below)
  • If it is possible to amend the agreement and if yes under what conditions and process

Coronavirus in Numbers 

Flights Cancelled

Confirmed Cases

World Bank to finance virus response

%

US Central Bank Emergency Rate Cut

%

OECD Downgrades World Growth Forcast

Coronavirus and Breach of Agreement in Cyprus

Running scenarios of possible breaches of a contract will allow the business to evaluate its weakness as well come up with contingencies.

Scenarios should be considered in light of the current coronavirus threat as well as existing mitigating factors and available contingencies. In other words, there is no point in contingencies that are impossible to mitigate.

Coronavirus impact and travel restrictions

For example, several organizations have issued travel restrictions to China, North Italy, Iran, South Korea, Japan, Hong Kong. In China, Honk Kong, as well as other places like London business, have advised employees to stay and work at home for 14 days in case they don’t feel well after travelling to one of these countries.

Furthermore assuming your company is a local Cypriot business serving only local clients, the travel restrictions should not impact your business, however, it might be the case that your directors, shareholders, clients are from China or another affected region so how do you continue operating?

Coronavirus impact on remote working

Although remote working is popular, the real question is, whether your business is ready for it and what needs to happen to prepare for such as scenario, has the business considered matters of cybersecurity, GDPR and overall performance.

Coronavirus impact on hospitality and tourism services in Cyprus

One of the most quickly affected industries has been the airlines with estimated cancellations topping 200.000 in the first few months.

This will have a spillover effect on the tourism industry in Cyprus and the advanced contracts already signed with tourist operators for the 2020 season. Key questions to ask if your a hotelier is:

Whether the tour guide operator can cancel the agreement due to coronavirus and if yes under what conditions?

Coronavirus impact to the real estate sector in Cyprus

This sector might be one to gain momentum due to the coronavirus; since initiatives such as the Cyprus Investment Programme allow visa-free travel to more than +180 countries around the world and as such freedom of movement means that the family may temporarily move away from high-risk jurisdictions such as China. Furthermore, a scan of the local market has shown that the NPL sale of Helix has brought about the sale of land and other commercial and residential structures. Applying a simple supply and demand calculation, cash-rich real estate developers most likely will commence acquiring properties for the next decade (personal view).

Nevertheless, Cyprus real estate development companies need people to buy the end product as well as people to pay them for completed work. If the  Cyprus real estate development company’s business model is sale to business then certain contingencies are inherent however does your property construction agreement sufficiently cover the occurrence of Coronavirus or similar decreases and the possibility of a none delivery?

Coronavirus and Force Majeure Clauses

Force Majeure clauses fall within a category of contractual terms known as boilerplate clauses. The clauses address a range of matters such as the governing law of the agreement, whether the agreement establishes a partnership, how the agreement will be signed and what happens in case, or due to an act of god the agreement cannot be performed. With the increased and expanded scope of coronavirus to agreements in Cyprus the force majeure clauses will come in focus.

Force Majeure clause means superior force in Latin and aims to release the parties from any obligation resulting from the agreement. Typical example would be a hurricane, flood, earthquake, volcanic eruption.

Force Majeure Definition

No legal definition of force majeure exists to date since each case is assessed on its merits. Their is no generally accepted or implied definition of force majeure and so the clause must be assessed in accordance with the  interpretation rules applied to contracts. Accordingly the precise details of the clause will hold the parties accountable. General wording such as “pandemic” or “epidemics” are likely to succeed if the World Health Organization designates the Coronavirus (COVID-19) as such, until the day of writing this article this is not the case.

Sticking to the process 

The agreement would typicaly presribe the process to be followed in the event of force majeure arising. A party seeking to rely on the clause, should strictly follow the process and this is one of the key reasons why having a very good understanding of the current cover afforded under the agreement is paramount. 

Extent of protection afforded by force majeure

A force majeure claese does not allow parties to escape liability for any breach of contract, only those instances that the breach is a result of the contractually agreed force majeure event. Accordingly parties need to be ready to demonstrate and evidence a direct link between the event and the parties inability to perform a contractual obligation. 

Maintenance of the Audit Trail and Supporting Evidence

In time of peril people neglet and or pay little attention to record keeping and admin of whaterever information is avaialble. This evidence will come in handy in future disputes.

Coronavirus and Director Duties in a Cyprus Company

The day to day management of a Cyprus Company falls within the scope and responsibility of the board of directors, interestingly enought, what is the direct responsibility when faced with crisis such as the Coronavirus? – Can it be argues that that the responsibility is similar to that which we faced in 2012 – 2013 Cypriot Financial Crisis and its aftermath, or similar to the 2011 Evangelos Florakis Naval Base emplosion .

Specifically in question would be the duty to exercise skill and care. This duty which is bestowed on every director, even if they do not know it, requires them to exercise a degree of skill, dilligence, knowledge and expirience that may be reasonably expected from another similar person having the same knowledge and expirience. The duty of care test will take an objective approach towards asessing the actions or ommissions of the director. 

Accordingly, having good knowledge of the likelyhood of a Coronavirus nationwide outbreak in Cyprus, the possibility of disruption to trade and commerce as well as the particular facts of each company what would a reasonable director do? 

Failing to act would most likely liable the director to damages and held personally liable to the company.

Harris Sharpe

Author - Photographer

For many years he has worked and devoted his skills and efforts towards building a successful career as a leading executive. From humble beginnings, his aim has always been to yield results; with a keen focus to attention to detail and client satisfaction. His experience has always been varied and not specific, at times he preferred it. With that in mind, he has dealt with CySEC on licensing and ongoing regulation, international private equity and credit fund managers, NASDAQ and NYSE listed companies occasional millionaires as well as self-made millionaires. His passion though is difficult transaction work organizing and deploying people for a common goal. Harris enjoys reading and studying the Cyprus law and sharing that information on this website.

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