The World Health Organization (WHO) on 11 March 2020, declared Corona Virus (COVID-19) a pandemic.

Following the outbreak of COVID -19, the South African President, Cyril Ramaphosa declared a National Sate of Disaster on the 15^th of March 2020, where a number of regulations were issued under the Disaster Management Act, 2002 (Act No. 57 of 2002) – and the country was subsequently put under lockdown. This resulted in the performance of obligations under a contract, in certain circumstances impossible. It is therefore deemed an “Act of State” and would fall under the common law understanding of force majeure as stated in the case of Nuclear Fuels Corporation of South Africa V Orda [1996] (4) SA 1190 (SCA), that an Act of State constitutes an event of vis major (force majeure).

COVID-19 has led to difficulties in the fulfilment of obligations under contracts. Some parties have force majeure clauses in their contracts whereas some do not. 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 the parties had a force majeure clause in their contract, the consequences stipulated in the contract will take precedence over those in the common law. Therefore, the effect of having a force majeure clause will be that the parties can rely on the provisions of the contracts to relieve them from performing their obligations under the contract. Thus, the force majeure clause is instead, used as an allocation of risk tool.

The test for force majeure is objective in nature and where there is a definition of force majeure in a contract, the parties are limited to what is provided for in the definition, meaning that the expression unius est exclusio alterius rule of construction, applying to legal writings will apply. Therefore, reference to “any other” in the force majeure clause would according to the aforesaid rule of interpretation, limit the application of force majeure to things that are specified in a force majeure clause- an intention to exclude all other in the contract may be inferred. The same approach is followed by UK courts – In the case of Sucden Middle-East v Yagci Denizcilik ve Ticaret Ltd Sirketi (The ‘Muammer Yagci’) – [2020] 1 lloyd’s rep. 107, the UK court noted that the phrase ‘force majeure’ is simply a phrase to label a list that includes a mixture of matters. The list informs the meaning of the phrase, and not the other way around. The South African courts would likely follow the same approach. The parties cannot simply rely on a clause that is labelled as a ‘force majeure’ clause or contains those words but does not list or elaborate on what the parties agree a force majeure to be. [Force Majeure and contractual obligations (COVID-19) – Georg Kahle and Yasmine Wilson, March 23,2020)]

What does the common law say? The common law position is that,if performance of a contract is impossible due to unforeseen events (not caused by the parties), parties are excused from performing in terms of the contract. However, impossibility must be absolute, or objective as opposed to relative or subjective. (See Unibank Savings & Loans Ltd (formerly Community Bank) v Absa Bank Ltd [2000] (4) SA 191 (W) 198 B-E). The general rule to approach the test for impossibility as mentioned by Scott JA (para 28)[1], one would need to look at the nature of the contract, the relationship of the parties, the circumstances of the case and the nature of impossibility invoked by the defendant.

The rule will not avail a defendant if the impossibility is self-created; nor will it avail the defendant if the impossibility is due to his or her fault. Safe possibly in circumstances where a plaintiff seeks specific performance, the onus of proving the impossibility will lie upon the defendant. This was also highlighted in the case of Liebenberg v Neville and Another (120/88) [1988] ZASCA 121 (29 September 1988)where it was stated that “Impossibility of performance can, under certain circumstances, result in the discharge of contractual obligations, and it is clear law that the person relying on such impossibility bears the onus of proving it. Furthermore, the parties must not have had reasonable foresight of the event causing impossibility at the time the contract was concluded – Nuclear Fuels Corporation of SA (Pty) Ltd v Orda AG [1996] (4) SA 1190 (A).

What does the principle of impossibility mean for a party? Therefore, a party can rely on the principle of supervening impossibility where it is impossible to fulfil their obligations under the contract as a result of the current lockdown situation due to the outbreak of the Corona virus. However, a party relying on the aforesaid principle will have to fulfil certain requirements before they can successfully rely on this principle. The court in Glencore Grain Africa (Pty) Ltd v Du Plessis NO & others [2007] JOL 21043 (O), made mention of the following requirements:

• The impossibility must be objectively impossible, and not as a result of the subjective act of the party relying on the impossibility;
• It must be absolutely impossible and not just improbable;
• It must be absolute and not attributable to the fault of either party;
• The impossibility must be unavoidable by a reasonable person; and
• The mere fact that a disaster or event was foreseeable, does not necessarily mean that it ought to have been foreseeable or that it is avoidable by a reasonable person.

We are in agreement with Justine Krige[2] that a party must ensure that a force majeure clause has been triggered before making a declaration to the other contracting party. Because declaring a force majeure where there is none could lead to a breach of contract, or in the case where it appears that the party no longer intends to perform its duties under the contract, it could lead to repudiation of the contract.

Where there is no provision in a contract for a force majeure event, reliance must be placed on the common law principle of supervening impossibility.  

Numerous articles[3] have been written by various legal practitioners to guide clients or companies in general on how to address COVID-19 pandemic in terms of contracts. It would seem therefore that, we are all in agreement that,

1. Force majeure refers to circumstances beyond the control of the parties and are intended to deal with, among other things, unforeseen acts of God; of governments and regulatory authorities; chemical or radioactive contamination; failure or delays in transportation; change in law and war.
2. Force majeure provisions typically contains a list of events that the contracting parties agree to treat as force majeure, and which render contractual performance impossible. This is an attempt by parties to cater to instances where the breach of a contract. i.e. non-performance is caused by circumstances beyond the control of the parties. If provision is not made in a force majeure clause for specific circumstances that will prevent performance by a party, the parties will have to rely on the common law principle of supervening impossibility.
3. The force majeure provision suspends the ordinary consequences of a breach of contract, including specific performance or termination and the payment of damages and/or penalties, which are not applicable due to impossibility of performance.

In conclusion, the benefit of having a force majeure clause in a contract is that:

It relaxes obligations and sets a limit to strict liability imposed on a party to perform in terms of a contract in the event of certain circumstances arising, which prevent or have an effect on the party’s ability to perform.

It protects a party to a contract from being liable for damages as a result of a breach of contract provided however that, it can be classified within the ambit of the definition of force majeure; and

It suspends the parties’ contractual obligations to one another for a period of time.

If force majeure clause cannot be classified, the South African law applies presumptions of interpretation to test  the meaning of words in contracts when the intention is not clear from the way a clause is drafted. To this extent,  the court will presume that the words used are used precisely and exactly, that the parties chose their words carefully to express their intention, and that no superfluous words were included.

This is the time to review the wording of force majeure clauses in your existing contracts to ensure if they can be relied upon and therefore not vague and incomprehensive and where you have no contract, to enter into one.

Is COVID -19 an Act of God or an Act of State? To whom does the risk pass? What does your contract say….Can we depend on common law?

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