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

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

Related Content

Related Content

Ouch! How Tiger Brands got its fingers burnt in Nigeria for the second time in a decade

Food giant Tiger Brands has passed on paying a dividend as it faces job losses and cost-cutting in its operations after a bruising first half trading on the cusp of COVID-19.

Tiger Brands CEO on results & how the company is responding to COVID-19 shocks

Food producer Tiger Brands reported a 35 per cent fall in half-year headline earnings and has deferred its interim dividend due to uncertainty by the Covid-19 outbreak. The group expects Covid-19 to unfold significant challenges to the business in the near future. Tiger Brands CEO, Noel Doyle joins CNBC Africa for more.

Netcare CEO on the impact of COVID-19 lock-down & medical sector readiness for virus peak

Hospital group Netcare saw a plunge in its hospital admissions in March and April with last month’s figures falling by 49.5 per cent. However, the group has noted that the easing of lock-down restrictions in May has seen a slight uptick in hospital patients. The group has scrapped its interim dividend and has committed R150 million to prepare its ICU and high care facilities to deal with Covid-19 cases. Dr Richard Friedman, CEO, Netcare joins CNBC Africa for more.

Moody’s changes Namibia’s rating from stable to negative

Nigeria’s GDP data and MPC announcement is expected later this week and Moody’s has changed the outlook on Namibia’s sovereign rating to negative from stable as it sites economic and financial pressure on Namibia amid the Covid-19 crisis. Ridle Markus, Africa Strategist at Absa Corporate and Investment Banking joins CNBC Africa for more.

Subscribe to our newsletter

Sign up for free newsletters and get more CNBC AFRICA delivered to your inbox

More from CNBC Africa

What Happens To Unspent Gift Cards?

Americans love gift cards. The plastic cash substitute has been the most popular holiday item on shoppers’ lists for 13 years in a row, as of 2007. In 2019 alone, U.S. consumers spent close to $98 billion on gift cards from brands like Starbucks, A

Curro opens its online doors to educate learners during COVID-19

Many parents are anxious about sending their kids back to school next week with the risk of Covid-19 infections in the classrooms quite high. Similarly, the risk of compromising the academic year by keeping kids at home until a treatment or cure is found is equally as high. Private school group Curro has launched an online schooling platform to help parents keep their kids educated and safe. Andries Greyling, CEO of Curro joins CNBC Africa for more.

Covid-19: WFP, YouTube partner to tackle food insecurity in Africa

Covid-19 disruptions to global supply chains have raised the alarm around food insecurity in Africa, with millions of people at risk of plunging further into poverty. To help the continent feed itself throughout the crisis streaming platform YouTube has partnered with the World Food Programme and UNICEF to raise funding. That’s as Africa works on a sustainable plan for food production, which includes reducing its reliance on food imports. Alex Okosi, Managing Director for Emerging Markets in Europe, the Middle East and Africa at YouTube joins CNBC Africa for more.

Africa’s unified & coordinated response to COVID-19: A public-private sector partnership

On this CNBC Africa special broadcast on Africa Day we hear from three influential and strident voices of the continent about how they feel Africa can come up with a unified and coordinated response to the pandemic – on both the private and public sector....

Trending Now

Protecting Africa’s progress during the COVID-19 pandemic

As of the 24th of May, Africa had a total of 107,412 confirmed Covid-19 cases, with 42,626 recoveries and 3,246 deaths. CNBC Africa’s Kenneth Igbomor explores ways to protect Africa’s progress during the Covid-19 pandemic with Dr.Vera Songwe, United Nations Under-Secretary-General and Executive Secretary of the Economic Commission for Africa, Dr. John Nkengasong, Director of the Africa Centre for Disease Control & Prevention and Edwin Ikhuoria, Africa Executive Director of the One Campaign....

How Africa can corner a tenth of the world battery metals market – if being brave favours Fortune!

“I can say, do we have a good business: yes. Are we in distress? No. We have a lot of work to do things are going to get worse before they get better.”

African artists donate their vocals to support COVID-19

While big business has used its deep pockets to contribute towards Covid-19 related aid, musicians are using their voices. Artists from across the continent have teamed up to create a song to help governments drive important messaging around Covid-19 and to encourage citizens to play their part in limiting the spread of the virus. Two of the artists on the song, South African rapper Riky Rick and Zimbabwean born Sha Sha join CNBC Africa for more....

How Covid-19 is shaping Africa’s prospects

This time last year Africa was celebrating the milestone that free trade on the continent would soon be a reality. Prior to Covid-19, the free trade Africa deal was due to be implemented on the 1st of July. Africa Day this year is, however, less joyful as the continent grapples with the prospect of deep recession and in some parts, depression with the coronavirus health crisis fast muted into an economic and financial one. Joining CNBC Africa to discuss Africa’s prospects in 2020 is Alexander Forbes Chief Economist, Isaah Mhlanga and Head of Strategic Slients, Lesiba Mothata.
- Advertisement -