With the outbreak of the novel COVID-19 pandemic and subsequent measures taken by various governments in their efforts to contain the spread of the pandemic, it is no longer "business as usual". The effect of the pandemic will have an impact on business for some time to come and we foresee that a large majority of South Africans will not be able to perform certain contractual obligations during the period of lockdown and the foreseeable future. It is therefore not surprising that some of the most searched words on the internet lately are "force majeure" or "supervening impossibility".
Some commercial contracts contain a force majeure clause, which allows a contracting party to suspend its contractual obligations for the duration of the force majeure event. Force majeure refers to circumstances beyond the control of the parties and are intended to deal with unforeseen circumstances, such as acts of God or acts of state. It is commonly accepted that the announcement made by President Ramaphosa on 23 March 2020 to declare a nationwide lockdown constitutes an act of state.
Where a contract contains a force majeure clause, the parties will have to rely on the specific provisions of the contract. Most force majeure clauses require a party seeking to rely thereon for purposes of not performing, to give notice before invoking force majeure. A party seeking to invoke force majeure, should consider carefully whether it should give notice, and if so, when and how notice should be given.
Where a contract does not contain a "force majeure" clause or does not make specific provision for a pandemic such as COVID-19, a party to a contract could rely on the common law principle of supervening impossibility to escape liability for its failure to perform. Supervening impossibility is a common law defence that suspends or in some instances terminates a party's obligations to perform.
In general, our courts have restricted the scope of supervening impossibility and it applies in very limited circumstances. A party seeking to rely on the principle of supervening impossibility must show that the performance is objectively impossible. The mere fact that it would be difficult to perform or that it would cause undue hardship to perform, will not excuse a party from its contractual obligations to perform.
Beware – invoking supervening impossibility could lead to termination of the contract.
The application of the principles underlying force majeure and supervening impossibility is not without difficulty and if incorrectly relied upon, could constitute a breach of contract and could give rise to a claim for damages. It is therefore strongly recommended to seek legal advice before invoking a force majeure clause or relying on the common law principle of supervening impossibility.
How can PSN assist you to navigate your contractual rights and obligations?
- Reviewing whether your contracts include force majeure clauses and whether its scope is wide enough to cater for a pandemic such as COVID-19;
- Renegotiating existing contracts in an effort to mitigate loss;
- Advising on possible breach of contract for non-performance and remedies;
- Resolving a dispute by making use of alternative dispute resolution mechanisms such as mediation, arbitration and in appropriate circumstances the appointment of a referee, acting as an expert and not an arbitrator.
Please contact Nico Herbst on 083 630 5937 or firstname.lastname@example.org for any assistance that you may require.