Law
Contractual obligations during Covid-19
Jun
On March 15, President Cyril Ramaphosa declared Covid-19 to be a national disaster in terms of the Disaster Management Act, 57 of 2002 (“the Act”).
The Act defines Disaster as a “progressive or sudden, widespread or localised, natural or human-caused occurrence which
(a) causes or threatens to cause
(i) death, injury or disease;
(ii) damage to property, infrastructure or the environment; or
(iii) significant disruption of the life of a community; and (b) is of a magnitude that exceeds the ability of those affected by the disaster to cope with its effects using only their own resources”.
Many people and businesses are starting to realise Covid-19 will have severe commercial implications due to forced quarantines, self-isolations and disaster management measures that many countries are implementing in order to prevent the spread of the virus. The impact of these disruptions are already being felt worldwide, as the limitations on movement impact the ability to produce, supply, manufacture, deliver and/or render services. To what extent, then, from a South African perspective, is a party to an agreement protected from having to comply with its obligations, should it be unable to do so, as a direct result of Covid-19?
Force majeure
Force majeure is a concept in South African law, and many other foreign legal systems, where a party is relieved of having to perform in terms of an agreement due to force majeure. A force majeure event can be described as an intervening event, beyond the control of the party who is required to perform, which renders performance by that party impossible, but it must meet certain contractual requirements. The general requirements in determining whether an event can be classified as a force majeure event, and whether a party may then rely on such an event as an excuse for not performing their obligations, are that the event must,
(i) be recorded in the relevant agreement;
(ii) be defined in the relevant agreement in sufficient detail;
(iii) be beyond the control of the parties;
(iv) not be avoidable or not be able to be overcome; and
(v) not be due to the negligence of the party required to
perform.
Covid-19 and force majeure (and possible alternative arguments)
Common examples of force majeure events, which are usually specifically provided for in agreements, are fire, theft, war, civil unrest, riots, and (which is sometimes relevant in South Africa) labour action or strikes. However, being able to rely on a force majeure provision of an agreement is ultimately based on the legal test for the existence of the force majeure event and the application of the legal principles of force majeure. Whether or not Covid-19 is then an event that may give rise to a defence to perform in terms of your agreement is very specific to the terms of your agreement. Agreements sometimes include a further “catch all” clause, which is a repetition of the common law defence of the doctrine of supervening impossibility. In the event that performance by a part is absolutely impossible, a party may be able to rely on this “catch all” clause (or the common law doctrine itself, if it is not recorded in the relevant agreement) to escape liability for non-performance. The “catch all” clause is generally worded to excuse a party from liability arising from its failure to perform its obligations in terms of an agreement, as a result of an event which is “beyond the party’s reasonable control”. It may be possible to argue that Covid-19 is such an event. If you are unable to perform your obligations in terms of an agreement, you may be able to rely on either
(i) the force majeure provisions of the agreement;
(ii) a “catch all” phrase in your agreement;
(iii) the doctrine of supervening impossibility; or
(iv) other specific provisions of your agreement. We cannot stress enough that each agreement and set of facts is different and you may not be able to rely on any of these defences.
Conclusion
Covid-19 has created an unprecedented situation in modern-day business, and people (and their businesses) will have to adapt to our current reality in order to ensure as little disruption as possible.
Should you need any advice or assistance with drafting or reviewing your will, we can be of service, contact us here or via;
Email: attorney@shalaw.co.za
Number: +27 67 617 3130
