Doing business during COVID-19

Due to the lockdown, parties who had entered into contracts before the pandemic hit South Africa, suddenly find themselves in a position where performance has become impossible.

Local and global lockdowns and subsequent effects thereof on business relationships and deliverables have brought two legal aspects sharply into focus:

1. supervening impossibility to perform

2. force majeure clauses in many contracts.

How will these two principles alleviate the impact of COVID-19 on your business?

A closer look at force majeure

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

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 a 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.

However, one must be careful of simply relying on a force majeure clause 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 explained

Should a contract not contain a force majeure clause, or if a contract does contain such a clause, but the wording does not allow its application to the specific event, parties can rely on the 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 it 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.

Review contracts now

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 is the best time to review your contracts and make provision, as far as possible, for an unforeseen event like COVID-19.