Newsflash: COVID-19 and force majeure

Will the coronavirus (COVID-19) constitute a force majeure event under South African law? The answer to that is that it depends on the circumstances. The virus has been declared a pandemic by the World Health Organisation and is causing unprecedented economic chaos internationally, owing to the closure of businesses and consequent disruption of global supply chains. On a local level, it is disrupting retailers, restaurants, service providers such as taxi services, and local businesses.

These disruptions may make it difficult for people and businesses to meet their contractual obligations.

Specific criteria need to be met for force majeure to be considered for the suspension of contractual obligations. Businesses should be careful not to simply rely on force majeure to escape their contractual obligations. Doing so could result in specific performance or damages claims being brought against your business.

Consequently, businesses should seek legal advice before dishonouring contractual obligations because of issues related to the COVID-19 outbreak.

Force majeure (vis major) in South Africa’s common law

A force majeure is an act of God or man that is unforeseen and unforeseeable, and out of the reasonable control of one or both of the parties to a contract, and which makes it objectively impossible for one or both of the parties to perform their obligations under the contract.

If an agreement does not contain a force majeure clause, or if a force majeure clause in a contract does not name the unforeseen event that the parties wish to rely on, then the parties may be able to rely on the common law principle of ‘supervening impossibility of performance’ to suspend their obligations under the contract, provided that it has become objectively impossible for them to perform under the contract, as a result of an unforeseeable and unavoidable event.

South African doctrine of impossibility

• The impossibility must occur after the conclusion of the contract.
• These events must be unavoidable and make proper performance of the contract impossible, not merely more burdensome or economically onerous.
• If performance becomes objectively or absolutely impossible, the contractual obligation is extinguished, and the duty to perform and the corresponding right to claim performance falls away.
• Objective impossibility includes instances of actual physical impossibility, as well as where performance remains physically possible, but cannot reasonably be expected to be performed.
• Both parties’ obligation to perform, according to the contract, will be extinguished.
• If the event causing the impossibility was foreseen or foreseeable and could have been avoided, then the parties cannot rely on this doctrine to not perform their obligations.
• Once the force majeure event has come to an end and performance has become possible again, the contract will continue.
• The creditor will have the option to terminate the contract, if the interruption is likely to endure for an unreasonably long time. The answer to the question of what is an unreasonably long period of time is one of fact. In the event of the contract being terminated, due to the force majeure clause, certain financial obligations can still be applicable and could be paid at a reduced price.

Force majeure clauses in contracts

The principal objective of a force majeure clause in a contract is to relax obligations and set a limit on the strict liability imposed on a party to perform, in terms of a contract, in the event of certain circumstances arising which prevent, or have an effect on the party’s ability to perform.

It provides protection to a party from being liable for damages for breach of contract, provided that it can be classified within the ambit of the definition of ‘force majeure’; and it halts the parties’ contractual obligations to one another for a period of time.

Parties often include time periods during which the contract would be suspended, if a force majeure event occurred. This gives any party the right to elect to terminate the agreement unilaterally by way of notice to the other party, should the force majeure event continue for longer than the set period. This period will depend on the agreement between the parties and the nature of the obligation, the contractual performance and the practicality of allowing for such a suspension.

Both parties will be excused from performing because the impossibility of performance, due to an event beyond the control and foreseeable expectation of the parties, causes their intention of performing an agreement to be extinguished, and frustrates the purpose of their agreement. This is based on the impossibilium nulla obligatio est (nobody has an obligation to do the impossible) maxim.

Wording of force majeure clauses

If your existing contracts have force majeure clauses in them, then you may be able to rely on these clauses, instead of the common law principle of ‘supervening impossibility of performance’ to suspend your obligations under a particular contract, if performance of that contact becomes impossible, as a result of an uncontrollable event.

If force majeure clauses are vague and incomprehensive, their interpretation could be problematic. South African law applies presumptions of interpretation to determine the meaning of words in contracts when the intention is not clear from the way a clause is drafted. To interpret the agreement, the court will presume that the words used are used precisely and exactly, that the parties chose their words carefully to express their intention, and that no superfluous words were included.

In the case of Sucden Middle-East v Yagci Denizcilik ve Ticaret Ltd Sirketi (The ‘Muammer Yagci’) – [2020] 1 Lloyd’s rep. 107 the UK court noted that the phrase, ‘force majeure’, is simply a phrase to label a list that includes a mixture of matters. The list informs the meaning of the phrase, and not the other way around.

The South African courts would likely follow the same approach. The parties cannot simply rely on a clause that is labelled a force majeure clause, or contains those words, but does not list, or elaborate on, what the parties agree a force majeure to be. Force majeure clauses must be detailed and specifically list the force majeure events that the parties agree will suspend their performance of the contract (such as an epidemic). In this regard, parties should specifically list broad, catch-all wording in contracts such as ‘act of God’ or ‘acts of authorities’, which they can rely on to encompass events they may not reasonably have foreseen.

An agreement should also specifically state that the force majeure events include a pandemic and acts by government. This will ensure that there will be no doubt that the consequences of the coronavirus will be covered by that force majeure clause. Given that South Africa announced a State of Disaster, certain effects flowing from this determination may be caught as ‘an act of authority’.

In summary

At LEAF, we can assist you with either adding a force majeure clause, or amending the force majeure clauses in your existing agreements to provide for a situation where it may be impossible for you to perform, as a result of the consequences of an infectious disease outbreak such as the COVID-19 outbreak.

Reference

G Kahle & Y Wilson. (2020, March 23). Force majeure and contractual obligations (Covid-19) [Web blog post]. Retrieved from

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