Authors: Veronica Vurgarellis – Director & Member of the Management Board & Musa Zimu – Candidate Attorney
The announcement by President Cyril Ramaphosa that South Africa has just entered a 21-day lockdown to mitigate the effects of the global COVID-19 pandemic will certainly disrupt our economy. Weddings and other events cannot continue, goods cannot be produced and delivered timeously, and many services can no longer be rendered.
Parties to contracts whose obligations are now difficult or impossible to meet because of the lockdown are asking whether they are excused from their contractual obligations because of it? For example, what if your office building is no longer accessible? Do you still have an obligation to pay rent? You have paid for a wedding venue but the wedding cannot proceed. Can you get your payment back?
We briefly deal with the position under contract and in the absence of a contract in this article.
Force Majeure explained
The position of contracting parties with the foresight to include a force majeure clause in their contract will be regulated by that clause. A force majeure – or vis major – is a superior force or event or circumstance beyond the control of contracting parties and as a result of which contractual performance is impossible. It is an act of God or man that is unforeseen or unforeseeable to either contracting party. Force majeure normally terminates contractual obligations, but the specific legal position between contracting parties will depend on their intention expressed in the force majeure clause in their contract.
Force Majeure clauses
Parties wishing to protect their interests and regulate their legal position often include a force majeure clause in their contract which can set out:
What constitutes a force majeure;
The effect of the force majeure on contractual obligations – whether termination or temporary suspension of either party’s obligations;
The procedure for invoking the clause to limit liability for inability to perform in terms of the agreement;
An agreed period during which non-performance will be acceptable and the consequences of the lapsing of that period;
An example of a force majeure clause is:
“In the event of force majeure, the contract will be suspended for the entire period during which the force majeure occurrence continues. Should the occurrence exceed 6 (six) months, either party becomes entitled to terminate the contract by giving written notice of termination to the other party.”
In keeping with the doctrine of freedom of contact, parties are free to customise the clause to suit their needs and specific industry. A well-constructed force majeure clause can eliminate a lot of the uncertainty that may arise in the event of the occurrence of a force majeure. Parties should be as detailed as possible in the construction of the clause. Vague force majeure clauses are subject to the rules of interpretation, which may have an unintended result for one or both parties or frustrate relief altogether.
Typical occurrences that are classified as force majeure events are:
Strikes, lockouts or riots;
Acts of god, fire, storm, earthquakes;
Acts of State
Breakdown, malfunction, or damage to plant, machinery, equipment or facilities;
Epidemics or quarantines;
Delay, shortage, lack of, or interruptions to supplies, electricity, gas, water, equipment, fuel and other materials;
Road closures or lack of access to roads; and
Inability to obtain or renew the required permits or licenses.
In the absence of a force majeure clause, the position is regulated by the common law principle of “supervening impossibility of performance”. An impossibility that arises after the conclusion of a contract is called supervening impossibility of performance, which means that performance has become objectively impossible without the fault of the debtor as a result of an unavoidable and unforeseen event.
The effect of supervening impossibility of performance
Supervening impossibility of performance affects both the obligation that has become impossible as well as any counter-obligations. If the impossibility is permanent, it generally excuses the creditor from rendering any counter-performance and obligations are extinguished on both sides. If the seller objectively through no fault on their part cannot deliver, the purchaser does not have to make payment. If the service provider cannot deliver the service, the client is not liable to make payment. Restitution of whatever was performed under the contract must take place, which can be enforced by an enrichment action.
If the impossibility is either temporary or partially impossible the circumstances of the case will determine the effect on contractual obligations. It is possible that a performance is divisible, in which case the debtor will only be released from those parts of the obligation which have become impossible to perform.
Requirements for supervening impossibility of performance
Two requirements must be met before supervening impossibility of performance can terminate a contract:
The performance must be objectively impossible; and
The impossibility must be unavoidable by a reasonable person.
Objective impossibility means it must be impossible for anyone to perform under the contract; it is not enough that it is impossible for the specific contracting party to perform.
Neither is it enough that performance has become difficult or expensive. The second requirement means that the impossibility cannot be due to any of the contracting parties – it must be attributable to any unavoidable act of nature or human beings. These include acts of State such as a government declared lockdown.
Conclusion
We suggest any contracting party wishing to rely on a force majeure clause or supervening impossibility of performance to seek legal advice before coming to any conclusions and to avoid actions based on breach of contract. Your legal adviser will advise you on your legal position based on your specific circumstances and the provisions of your contract.
Lawtons Africa is a South African law firm. With roots that grew out of seeds sown in down-town Johannesburg in 1892, our history features various changes and different names. Our team of approximately lawyers, including directors, consultants, associates and candidate attorneys is highly qualified, market-recognised and skilled. For further information, visit www.lawtonsafrica.com