Contractual Obligations in South Africa and COVID-19 | Legal Articles

 

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Contractual Obligations in South Africa and COVID-19

Many South Africans are wondering how COVID-19 will affect their contractual obligations. Therefore, many companies and private individuals are reviewing their contracts and whether they can plead “force majeure”.

contractual obligations and COVID-19

Force Majeure Meaning

When translated, force majeure means “superior force” or “unavoidable accident”. It refers to a common clause in contracts that aims to alter parties’ contractual obligations when circumstances beyond their control hinders one or all of the parties from fulfilling their obligations.

Force Majeure and COVID-19

Generally speaking, force majeure clauses will adopt one of the following approaches when defining the type of event which may relieve a party from its contractual obligations:

Specific Events

These events may include:

  • Terrorism
  • Earthquakes
  • War
  • Hurricanes
  • Acts of government
  • Epidemics
  • Plagues

When referring to an act of government, this is where a government body has put into place quarantines, travel restrictions, trade embargoes, or has closed borders, buildings and businesses.

However, when it comes to force majeure, the important difference lies in whether the government simply makes a recommendation or uses its power to make strict orders.

Conditions of Force Majeure and Contractual Obligations

It’s important to consider the impact on the affected party’s ability to perform its contractual obligations.

It’s quite common for a force majeure clause to specify the impact that a circumstance or event must have in order for the clause to be put into effect.

Reference may be made to the event having hindered, delayed or prevented a party’s ability to perform its obligations.

Hindered

Also referred to as impaired, impeded or interfered with. This is a lesser standard and, in appropriate circumstances, may be triggered by performance being made extremely difficult due to circumstances out of their control.

Delayed

In such cases, it’s not necessary for parties to prove that obligations have been prevented for a period of time, or impossible to perform.

Instead, parties must be able to show that complying with obligations as quickly as required under the contract is substantially more difficult.

Prevented

This means that it has become legally or physically impossible for a party to fulfil its obligations. It is relatively difficult to prove this, as it does not refer to performance being more difficult, less profitable or more expensive.

In previous cases, the courts have interpreted the force majeure clause as only applicable where performance is absolutely impossible on the occurrence of events beyond their control.

The following should also be shown when relying on force majeure to relieve contractual obligations:

  • There were no reasonable steps that could have been taken to mitigate or avoid the event or its consequences
  • The force majeure event was the cause of the party’s inability to perform its obligations
  • The party’s non-performance is due to circumstances that are beyond their control

Steps to Follow when Seeking to Rely on a Force Majeure Clause

The following steps should be followed by any party who wishes to rely on a force majeure clause:

  • Determining whether performance is excused by a force majeure clause can be a difficult and highly fact-sensitive exercise, so early legal advice should be sought. Take into careful consideration the precise wording of the force majeure clause, the contract as a whole and the circumstances that have arisen.
  • Explore alternative means of performing, reducing delay, or minimising any loss to the other party. For example, consider alternative suppliers, or alternative methods of delivery, even if at a higher cost.
  • Serve any notices as required under the contract, as soon as possible and in accordance with the notice provisions.

Consider carefully what event or circumstance you claim constitutes the force majeure event, taking into account the wording of the clause and the timescales required for service of notice.

For example, was it the outbreak of COVID-19 itself, or subsequent government restrictions put in place?

  • Do not rely on increased costs to excuse non‑performance or delay, as this is not usually sufficient.
  • Keep a documented record, particularly of: why performance was impossible, hindered or delayed as the case may be. Include the steps taken to find alternatives and mitigate loss, and the service of any notices.
  • If there is no force majeure clause, consider frustration. However, be aware of the high bar for establishing that a contract has been frustrated.
  • Consider other routes and remedies, either under the contract or through agreeing on binding variations to contracts with other parties.

Van Deventer & Van Deventer Incorporated – Attorneys in Cape Town & Johannesburg

If you would like more information regarding force majeure and how COVID-19 may affect your ability to fulfil your contractual obligations, please feel free to contact our attorneys.

Comments are closed for this post, but if you have spotted an error or have additional info that you think should be in this post, feel free to contact us.


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