May the force majeure be with you – contracts in the world of COVID-19

PUBLISHED: Wed, 06 May 2020 21:06:28 GMT

By Shaaheda Hoseini

With COVID-19 hanging over us many individuals and companies are concerned about whether they will be in a position to fulfil their obligations in terms of contracts of sale they may have entered into.

The question arises, can either of the parties to the sale agreement have it suspended or terminated? One must first examine the sale agreement for a Force Majeure clause to cover a pandemic, strike, fire, war, or a natural disaster. This may exclude a party from performing its obligations either partially or in full. It may further entitle a party to suspend or claim for an extension of time to perform an obligation.  

A party wishing to rely on a force majeure clause due to Covid-19 must ensure that the requirements as set out in the force majeure clause are satisfied, and that this clause is wide enough to include the pandemic. Performance in a contract cannot be avoided as a result of one’s negligence, failure to exercise due diligence and care, or due to a party’s poor financial condition which was not a result of the spread of the virus. Each Force Majeure provision must be considered on its precise terms and it’s specific context.

In the case of Rumdel Cape and Others vs South African National Roads Agency (2015) the applicant was a joint venture company which was appointed by SANRAL to improve a road and construct a flyover at a road interchange in Durban. A construction agreement was concluded between the parties, and construction began by the joint venture company (applicant).

Violent protests, by nearby communities,disrupted construction. The applicant stated that these riots constituted a force majeure and claimed release from performance of its obligations.

The court held that a force majeure clause was not applicable in the above circumstances, as the applicant could have taken all reasonable precautions to prevent riotous conduct on the site. It further stated that the applicant was not prevented from performing its obligations due to a force majeure event, namely the riot, as measures could have been taken by the applicant to obtain insurance, or personally finance the amount required for security in order to ensure performance of the contract. Therefore, although the contractual agreement included the occurrences of a riot, commotion and disorder as being a force majeure event, the court held that a force majeure event was not the cause of the applicant not performing in terms of the contract. The court referred to the matter of B & S Contracts and Design Limited  v Victor Green Publications, where the court stated that where every effort had not been made to perform in terms of the contract, reliance could not be placed on the Force Majeure clause. The court emphasized that for a Force Majeure clause to be invoked, the applicant would have taken all reasonable efforts to avoid the various effects set out in the clause which entitles him to vary or cancel a contract.

Reverting to the question, can a party suspend or terminate a sale agreement due to effects of Covid-19?  The answer is yes, it is possible, provided that the Force Majeure clause is included in the deed of sale and it includes a pandemic of this nature. All requirements, as set out in the Force Majeure clause are required to be satisfied and all reasonable steps to avoid the effects which allows one to suspend or cancel the contract must have been taken.

If the contract does not have a force majeure clause, the common law principle of “Supervening impossibility of Performance” may be relied upon. This defence is used to terminate a party’s obligations where an unforeseable event has made fulfilment of one’s contractual obligations impossible.

The performance of the obligation must in addition to other requirements, be objectively impossible, and not subjectively impossible. Performance needs to be more than just more difficult or more onerous to perform as a result of an unforeseeable event.

Can one terminate an agreement due to the effects of Covid-19 using the aforementioned defence? This will depend on the particular facts of each case.

Shaaheda Hoseini is Director of conveyancing at Gwina Attorneys

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