The COVID-19 pandemic has had an enormous impact on society and will keep on impacting all of us until the illness has been brought under control…. but what about contractual obligations in these times?
What if someone is prohibited to perform in terms of a contract, due to lock down and the related regulations?
It is unjust to expect someone to perform where it is impossible to do so!
The concept “supervening impossibility of performance” is the common law doctrine followed in South Africa.
In short this refers to the position where contractual performance was possible at the conclusion of the contract but afterwards becomes objectively and permanently impossible through no fault of the parties.
Furthermore, the impossibility must have been caused by vis major or casus fortuitus and it must have been beyond the control of the parties.
Vis major are events like natural disasters and are traditionally referred to as “Acts of God”. It relates to an event due to superior power or force. For a natural event to be a vis major it must be of such magnitude that it could not be foreseen or guarded against.
Casus fortuitus is an exceptional or extraordinary event which could not be reasonably foreseen.
These terms are effectively very close in its application and essentially includes any event whether due to forces of nature or human intervention (for example Governmental regulations) which were unforeseeable and unavoidable even with reasonable care…which then makes contractual performance impossible.
(i) performance must be objectively impossible
(ii) it must be absolute;
(iii) it must not be relative; meaning if the performance can be done in general (by someone else) it does not free the contractual party who cannot himself perform;
(iv) it must be unavoidable be a reasonable person;
(v) it must not be the fault of either party; and
(vi) the mere fact that a disaster or event was foreseeable, does not mean that any party should have foreseen it or that it is avoidable by a normal reasonable person
Important to note:
– if the performance was at the conclusion of the contract already impossible; the contract is void as the expected performance was from the outset impossible.
– as soon as a contract has become impossible in its entirety, the contract terminates and that the parties are freed from their obligations.
-the strictness of this rule and the severe consequences of its strict implementation has led to the insertion of individualized “force majeure” clauses into many contracts. Our law allows parties to contract freely within certain boundaries and specifically allows them to customize these types of clauses to suite the specific circumstances. This has been effectively used in the past to more fairly address possible force majeure events and to implement contractual machinery for a just cancellation or alteration of the contract.
The facts of any specific matter must be investigated in accordance with the above stated common law rule and based on that ,it could be said whether performance was impossible or not.
In South Africa the Minister of Cooperative Governance and Traditional Affairs declared a national state of disaster on the 15th of March 2020.The regulations included various restrictions to combat the spreading of COVID 19 and functions on an Alert Level system. In accordance with the specific Alert Level at any present time it must be considered whether any specific action was objectively possible in that period. Should it have been impossible (in accordance with the common law rule) it could correctly be argued that performance was impossible and that such contractual party would be freed from its obligation.
So yes, the COVID 19 regulations could form the base of claiming performance was impossible under common law.
Where a contractual force majeure clause is inserted in a contract (thereby overriding the common law principle) that contractual clause must be carefully examined.
It must be determined whether the COVID 19 regulations (Alert Level at any time) and other facts surrounding it makes or made performance impossible measured against that contractual term.
So again yes, the COVID 19 regulations could form the base of claiming force majeure in terms of such contractual clauses.
Prior to COVID 19 force majeure clauses referred to events like: earthquakes, floods, hail or any other natural disaster or Act of God; and wars, riots, bombings, rebellion etc.
Examples of events included as new force majeure events are:
Lock down, State of Disaster declared by Government or pandemic.
Unfortunately in some contracts these “force majeure events” are simply listed as a list of trigger events, which connects to a clause which states, that should any of those events happen, then a “force majeure event” has occurred. This automatically then triggers certain rights in the contract. For example, the right to exit the contract or to postpone performance!
The extremely vital requirement of the “force majeure” event actually making performance impossible is omitted.
Such clauses could intentionally or unintentionally leave a back door open to a party to exit the contract at any time without due reason.
As always, the contract (the whole contract) must be carefully read.
Attempts to deal with COVID 19 force majeure events must be scrutinized fully to ensure that the principle of actual impossibility is retained.
Jacques van der Merwe
Jacques van der Merwe Maja Inc.
9 August 2020
*The views expressed here are my personal views on this theme and are not to be used or copied in any manner. It may not be interpreted as anything else ,as my personal opinion. It is not legal advice in any case. Should you wish to obtain specific advice on any matter this should be done by taking up personal contact with myself or any one of our attorneys.