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COVID-19 and Force Majeure (Malta)

An issue of particular importance for businesses in the current pandemic circumstances is that of force majeure. A force majeure clause exists in most commercial contracts. Whilst COVID-19 is most likely not to be referenced in a contract, force majeure clauses typically include a list of events including government orders, wars, national emergencies and sometimes also pandemics. Generally such clauses are enforceable when circumstances are such as to satisfy three criteria: (i) exceptional circumstances (ii) unforeseeability and (ii) unavoidability.

Apart from considering whether force majeure clauses may be enforceable, one may also consider whether the latin maxim “inademplendus non est andemplendi” may apply in civil jurisdictions such as the Maltese jurisdictions. Such principle may excuse a party who has failed to honour his contractual obligations from responsibility if such party can prove that there are justifiable reasons for his default.

Historically, Maltese courts have always looked at the factors of “inevitability” and “reasonableness” when dealing with such pleas. While the current crisis may objectively satisfy the inevitability criteria, the “reasonableness” criteria may be more subjective and to be dealt with on a case by case basis. In considering whether a default is reasonable, one would have to assess factors such as supply available, prospects of timely recovery, remedies realistically available and accessible substitutions. Such assessments would prove vital in contingency planning, negotiation, dispute resolution and ultimately litigation.

Maltese Government’s measures relating to social distancing

Ever since Malta confirmed its first COVID-19 positive case on the 7th of March 2020, the government has gradually introduced measures - most of which are mandatory subject to fines and criminal prosecution if not followed – aimed at respecting social distancing which health authorities over the world have recommended.

As at the time of writing this article (30th March 2020 at 13:51hrs CET), the Government has imposed the following measures:-

-       a mandatory 14-day quarantine for all those individuals returning to Malta from foreign countries;

-       cessation of all travel by sea or flight except for importation and exportation of goods and essential supplies, humanitarian and repatriation flights;

-       closed down all academic institutions, most courts and tribunals, all bars, restaurants, gyms and other social and public places together with closure of all non-essential retail outlets except for those predominantly selling foods and medicines;

-       prohibited any organized public events whether in a closed confinement or not;

-       strengthened the powers of the superintendent of public health and the executive police to enforce measures respecting social distancing;

-       ordered all persons over the age of 65 and individuals considered to be vulnerable due to health conditions to stay indoors until further notice.

Such measures have so far been generally accepted by the public and most employers have in fact encouraged employees to telework, where possible. The Maltese government has also announced incentives, which include financial assistance, for employers to invest in teleworking-friendly technologies.

Measures intended to aid businesses

With the global pandemic largely affecting most businesses, some of which are facing a dire situation and absolutely no income, the Maltese government has so far launched three financial packages to aid local businesses. All economic measures are in line with the EU Commission’s recommendations to member states to introduce initiatives such as wage subsidies, suspensions to corporate and value added taxes and granting of financial support directly to consumers.  

The first package of economic measures applicable to both employers and self-employed individuals consist in the postponement of tax payment deadlines (provisional tax, social security contributions and payments under the Final Settlement System (FSS) rules and Value Added Tax (VAT) Act), acceleration of payments due to businesses such as VAT refunds and a 45% refund scheme – capped at €500 per employee - for businesses investing in teleworking systems.  

A second package of financial measures include €150m worth in bank guarantees, €750m to be made available to businesses in the form of soft loans, provision of Government guarantees of up to €900m, options to request a 3-month moratorium on business and personal loans and €210m of funds made available to cover COVID-19 related expenditure. Apart from the afore-mentioned measures, as part of this second package of financial assistance, the Maltese government announced incentives relating specifically to employment. Such measures include the following: 

-       grant of 2 days’ salary per week (based on a monthly salary of €800) for employees of businesses that have suffered from a complete suspension of operations (e.g tourism accommodation, language schools and entertainment industries)

-       self-employed individuals operating businesses which have had to completely cease operations shall also receive the afore-mentioned grant. Those self-employed individuals who employ other individuals to receive a grant equal to 3 days’ salary per week.

-       Employees of businesses whose operations were reduced by a minimum of 25% are to benefit from a grant equal to 1 days’ salary per week (based on a monthly salary of €800)

-       Individuals whose full-time employment is terminated with effect from 9th March 2020 shall benefit from a temporary increase in unemployment benefits of up to €800 monthly.

-       Businesses terminating active employment contracts of third-country nationals will be prohibited from recruiting additional third-country nationals;

-       Going forward only applications for highly skilled third-country workers will be considered by the authorities;

A third financial package announced is entirely employment-related. These measure include the following:-

-       Payment of a full salary of €800 monthly to all workers, being either employees or self-employed persons who work in certain critical sectors.

-       Payment of one day’s salary per week per employee, based on a monthly pay of €800 for other sectors less affected such as the manufacturing industry but with a possibility of increasing this to a two day’s salary depending on the development of the economic situation. This is already equivalent to two day’s salary for those employees and self-employed individuals working on the island of Gozo.

Legislative changes due to COVID-19

Most legislative changes so far have been employment related, most notably being the introduction of a fully paid “quarantine leave” of 14 days in addition to the general leave entitlement for those individuals affected by mandatory quarantine.

Other legislative changes of notable importance relate to the suspension of legal and judicial time limits, including those related to prescription. Such changes were necessary due to the closure of the court’s registry.

Operations of court systems during COVID-19

As of the 16th March 2020, the Superintended of Public Health has ordered the closure of all courts and tribunals, including the registry. Therefore, no acts may be filed unless there is a specific request to open the court’s registry on the basis of urgency. Whether the criteria of urgency is satisfied is however completely within the discretion of the duty judge.

Exceptions to the above are boards and tribunals which do not operate from within the building of the Courts of Justice, in particular the Public Contracts Review Board and the Planning Authority boards, which have continued to convene on reasons of public interest, even though their procedures have been revised.