In light of the COVID-19 pandemic having the potential to trigger events of default across various commercial contracts, resulting in substantial losses for parties involved, it is thus not surprising that the topic getting the most attention in both the South African and global legal circles, is the seldom-used but ever-seductive trump card in commercial contracts: the force majeure clause.
FORCE MAJEURE DOCTRINE
A force Majeure means extraordinary events or circumstances beyond human control, such as an event described as an act of God / natural calamity or events such as war, civil disturbance or any other circumstance beyond the reasonable control of the parties (but not including negligence or wrong-doing, predictable/seasonal rain and any other events specifically excluded in the force majeure clause).
A force majeure clause in a contract frees both parties from contractual liability and obligation when prevented by such events from fulfilling their obligations under the contract. Moreover, a force majeure clause does not excuse a party’s non-performance entirely, but only suspends it for the duration of the force majeure event. Parties to a contract must give notice of the force majeure event as soon as it occurs as it cannot be claimed ex-post facto / after the fact.
Some force majeure clauses provide that if a party’s performance (in whole or part) or any obligation under the contract is prevented or delayed by any reason of force majeure for a specific period, then either party may, notwithstanding the force majeure clause, have the option terminate the contract without financial repercussion on either side.
IS THE COVID-19 PANDEMIC A CLASSIC CASE OF FORCE MAJEURE?
Where the government has imposed a lockdown designed to mitigate the effect of the COVID-19 pandemic, which consequently renders it impossible for parties to perform in terms of their contracts, then contracting parties may be able to rely on the force majeure provision in their contracts to escape liability for non-performance.
Where the contracts are silent on what would constitute a force majeure, then parties may rely on the common law doctrine known as: “supervening impossibility”.
COMMON LAW
In terms of the supervening impossibility doctrine, a party’s obligations to perform in terms of a contract, as well as their respective rights to receive performance under that contract will be extinguished where performance by a party of its obligations becomes objectively impossible as a result of unforeseeable and unavoidable events, which are not the fault of any party to that agreement.
These events are usually sudden, unforeseeable, unstoppable and beyond the control of any of the parties.
The court in MV Snow Crystal, Transnet Ltd t/a National Ports Authority of MV Snow Crystal [2008] 3 All SA 255 (SCA), set out factors that should be considered when a party seeks to rely on the supervening impossibility to escape liability for non-performance. These include: the nature of the contract, the relationship of the parties, the circumstances of the case, and the nature of the impossibility invoked by a party.
To avoid the potential ambiguity of the common law, most well-advised contracts contain a force majeure clause, which deals specifically with the consequences of an event (such as the COVID-19 pandemic) causing performance to become impossible.
The court in Airports Company of SA Limited v BP Southern Africa Pty Limited and others [2015] JOL 34127 (GJ), confirmed that in the case where parties made provision for this contractually, the consequences stipulated in their contract will take precedence over those in the common law.
Therefore, a contract can specify a list of excluded events or contain a closed list of events that would trigger the force majeure clause and extinguish the parties’ obligations under the contract.
CONCLUSION
For parties to rely on a force majeure clause or supervening impossibility, there must be a causal link between the non-performance and the force majeure event or supervening impossibility. Lastly, the impossibility to perform must be absolute as opposed to relative.
Put differently, if performance relates to something that can generally be done (regardless of the COVID-19 lockdown or other force majeure events), but the party seeking to escape liability simply does not perform, then such party remains liable in terms of the contract.
Parties who seek to rely on a force majeure or supervening impossibility are advised to first seek guidance from a qualified legal adviser as each matter will be guided by its own merits.
