Force Majeure And The Impact of COVID-19 On the Contractual Obligations
During President Cyril Ramaphosa’s address to the Nation on 9 April 2020 he briefly touched on the concerns of many South Africans; the issue of Force Majeure. The implementation of the national ‘Lockdown’, and the extension thereof up and until 4 May 2020, has rendered parties unable to perform the contractual obligations they have undertaken. Many individuals and businesses are unaware of the recourse available should they find themselves in the unfortunate position of being unable to perform, alternatively uphold their respective obligations in terms of legally binding contracts.
The Coronavirus (COVID – 19) global Pandemic has had far reaching effects on all aspects of commerce in both the public and private spheres of our economy. This article will elaborate on the national impact of COVID-19 and the resultant State-declared lockdown on the contractual rights and obligations of parties in contractual relationships under South African law as well as establish whether Force Majeure provides a right of recourse to contracting parties. Fortunately, to mitigate the damage and impact of natural disasters on the contractual obligations of parties to an agreement, our law makes provision for a Force Majeure (vis major) event such as COVID-19.
What is a “Force Majeure”?
Force Majeure or vis major (Latin), when translated directly into English, means “an act of God” and an “irresistible force” that is both unforeseeable and beyond the control of parties to a contractual agreement. The realisation of such an unforeseeable event must render performance on behalf of one or both parties to a contract, objectively impossible. The test is an objective one that asks whether the event or disaster was both foreseeable and avoidable by a reasonable person. To activate a Force Majeure clause in South African law, the aforesaid event must fulfil the following conditions (Glencore Grain Africa (Pty) Ltd v Du Plessis NO & others  JOL 21043 (O)):
- Performance must be objectively as opposed to subjectively impossible.
- The impossibility must be absolute as opposed to probable.
- The impossibility must be absolute as opposed to relative.
- The impossibility must be unavoidable by a reasonable person.
- The impossibility must not be attributed to the fault of either party.
In our common law, a party’s inability to perform may be excused by the courts where performance becomes physically impossible, and such impossibility was neither contemplated nor foreseen by the parties at the time of concluding a legally binding contract. Where a contract does not expressly make provision for a Force Majeure event, our common law principle of “Supervening Impossibility” becomes applicable and may discharge a party from liability and absolve them from upholding their contractual duties to perform (Peters, Flamman & Co v Kokstad Municipality 1919 AD 427). A party who wishes to rely on the principle of supervening impossibility, will be required to prove that as a result of the event, it is objectively impossible to tender performance in the circumstances, that the event was objectively unforeseen and further, that the consequence of being unable to perform was unavoidable and by no fault of either party.
However, where provision is made for a Force Majeure clause in a contract, the terms and consequences stipulated in the aforesaid clause will nullify the application of the common law principle of supervening impossibility (Airports Company of SA Limited v BP Southern Africa (Pty) Limited and others  JOL 34127 (GJ)). The implication of this is that an express Force Majeure clause will take precedence over the common law and such clause will take effect from midnight Thursday 26 March 2020, he date and time of the implementation of the national lockdown in South Africa. Should a contract contain a Force Majeure clause and in order for a party who is unable to perform in terms of the contract to invoke the clause, they will have to provide evidence that the COVID-19 pandemic alternatively the State imposed lockdown constitutes a Force Majeure event and therefore falls within the ambit of the wording of such a clause. In this regard any remedy stipulated in the contract in respect of the Force Majeure event, will become applicable.
Commercial Rental Agreements – What now?
Generally, a Force Majeure clause extinguishes contractual obligations between parties. Whilst our President appealed to large businesses by urging them not to resort to Force Majeure and to uphold their rental commitments, as well as to continue paying their suppliers; commercial tenants and parties to lease, sale and employment contracts may not have a choice in the matter due to the financial impact of COVID-19. A consequence of companies resorting to Force Majeure, is that it will have a domino effect on all businesses in South Africa, who may follow the same recourse.
What has become increasingly prevalent is the amount of landlords for large retail stores, shopping malls and offices parks who are struggling to receive payment from their commercial tenants. Under normal circumstances, and as a general legal principle in our law a business’ failure to pay rental in terms of a lease agreement, constitutes a breach of that agreement. This breach entitles a landlord to cancel the agreement, claim damages as well as any arrear rental. However, in these unprecedented times where performance of contractual obligations is impossible due to lockdown regulations, a tenant may find themselves being obligated to pay the full amount of rental for a premises they are physically unable to access. In such a scenario, the aggrieved tenant may find recourse by invoking a Force Majeure clause, should one be incorporated in the contract in question.
Where a company is unsure of the implications of the National Lockdown on the contractual obligations they have undertaken, the contract in question should be assessed to determine whether a Force Majeure clause has in fact been included in the terms of the contract. Where a clause has been included that exonerates performance as a result of a Force Majeure event, the non-performing party will be required to prove that all the conditions as stipulated herein above have been met in order to be absolved from ensuing liability as a result of non-performance. However, where a Force Majeure clause has not been included and was neither anticipated nor contemplated in the minds of parties at the time of contracting, the common law legal principle of ‘supervening impossibility” will become applicable.
Written by: Aalia Amra
Candidate Attorney at Nicole Ross Attorneys
Please contact Nicole Ross Attorneys for all your COVID-19 related questions.