What is your legal framework during COVID-19

N o other event in recent history has highlighted the fragility of our normal way of living, thinking and doing business quite like this global pandemic has. It has disrupted global supply chains and local industries alike. Lockdowns have been imposed in various countries, to various degrees.

The South African government has imposed a strict lockdown during which only essential services may be rendered and essential suppliesmanufactured and delivered.

Due to the lockdowns, parties who had entered into contracts to render certain services or provide certain deliverables before the start of the pandemic now suddenly find themselves in a position where performance has become impossible.

The South African and global lockdowns and subsequent effects thereof on business relationships and deliverables has brought two legal aspects sharply into focus, that of supervening impossibility to perform and force majeure clauses in many contracts. How will these two principles alleviate the impact on your business?

WHAT IS A FORCE MAJEURE?

It is an event giving rise to impossibility of performance and can be either an act of God (natural causes) or man (human agency). The event is something that is unforeseeable with reasonable foresight and unavoidable with reasonable care.

FORCE MAJEURE CLAUSES

Inclusion of a force majeure clause in a contract has the effect of removing the so-called unforeseeability of an event. It may remove or alleviate the liability for damages as a result of breach of contract due to the impossibility to perform on the occurrence of a specific event. Depending on the wording of such a clause, it could suspend the legal obligations of the parties for a specific period, and allow a party to elect to cancel a contract, should the impossibility to perform extend beyond the agreed period.

One must be careful of simply relying on a force majeure clause in order to suspend legal obligations. This is because our law places strong emphasis on the sanctity of contract and the wording of the force majeure clause will determine whether the event obstructing performance falls within the parties’ intention of what they had defined as a force majeure. The courts adapt a strict interpretation of the parties’ intentions and a vaguely worded force majeure clause may not have the effect of relieving parties from their obligations.

SUPERVENING IMPOSSIBILITY

Should a contract not contain a force majeure clause, or alternatively where a contract does contain such a clause but the wording does not allow its application to the specific event, parties can rely onthe common law principle of supervening impossibility to perform. This principle is relied on if a specific event has made it impossible for the parties to fulfil their respective obligations.

It is important to note that the impossibility to perform must relate to the actual contractual obligations, the event causing the impossibility must be unforeseen and occurs after conclusion of the contract. Our law allows the extension of this principle to legislative changes that were introduced subsequent to the conclusion of the contract and which have the effect of rendering performance impossible. The enactment of the directives and regulations under the auspice of the Disaster Management Act could qualify as such a legislative change.

In short, a business may rely solely on its contractual terms or on the common law principle to navigate these difficult times, but it is important to review and formulate an approach carefully in order to avoid liability. If nothing else, now isthe best time to review your contractsand make provision, as far as possible, foran unforeseen event like COVID-19.