The relevance of Force Majeure and contractual obligations during a pandemic
24 August 2020 | Ariko Stolz
On 26 March 2020, South Africans experienced the unknown phenomenon of a national lockdown. Unprecedented regulations where implemented by the South African Government, that required all South Africans to stay home and non-essential traders and businesses were required to temporarily close their doors, as to curb the spread of the COVID 19 Coronavirus.
These forced closures made it difficult for people and businesses to act in accordance with their contractual obligations forthcoming from contracts, such as lease agreements, sub-contractor agreements, delivery of goods, etc. It can objectively be foreseen that the pandemic and the subsequent consequences of a national lockdown, will inevitably continue to place immense strain on the economic sector in the near future, therefore causing great concern for parties who rely on another contracting party to perform in terms of the agreement, as there is no certainty if the other party will be able to meet their obligations in terms of the contract.
The consequence of a party not being able to meet their obligations in terms of a contract, gives rise to an action of contractual breach, which breach enables the aggrieved party to claim certain remedies as to enforce their rights, such remedies includes, but are not limited to: specific performance, claim for damages, cancellation of an agreement, etc. What the Coronavirus triggered, in terms of a contract, is the tendency for the non-performing party, to now raise a defence, what our law tends to call a force majeure.
Force majeure (vis major) is defined in general terms as an act of God or man that is unforeseeable and unforeseen, which act is out of the reasonably expected control of either one or both parties to a contract, whereby such an act experienced by a party, makes it objectively impossible for one or both of the parties to perform in terms of their obligations imposed under a contract.
The common law defence of a supervening impossibility to perform, is another defence which a party may rely on relax its obligations in terms of a contract, alternatively to raise a proper defence.
A contracting party may however not rely on force majeure automatically and a contract must therefore make provision for such events and also define what could be construed as such an event. Should a contracting party choose to rely on force majeure, certain criteria must be met, and if so met, the raising party may be successful to suspend its obligations in terms of the contract, thereby indemnifying the party of its obligations and subsequent legal action.
It is apparent from both the force majeure clauses and the common law principle, that the principle objective is to relax obligations and to set a limit to the strict liability which is imposed on a party to deliver a performance in terms of a contract, in the event of certain circumstances arising, which may prevent or have an effect on the party`s ability to perform.
The force majeure clause, in contrary to the common law principle, however can clearly define the parameters, timeframe and implications of a vis major event, contrary to the common law principle which provides for a more broader term, causing the party relying on force majeure to receive a higher burden of proof, which is more unlikely to be proofed or successfully raised, as no clear definition is established, and directly therefore causing a greater number of elements that must be proofed.
Parties furthermore should be wary of contracting broadly with a force majeure clause, as the UK court in the matter of Sucden Middle-East v Yagci Denizcilik ve Ticaret Ltd Sirketi (The ‘Muammer Yagci’) – [2020] 1 lloyd’s rep. 107, declared the phrase “force majeure” is simply a phrase to label a list that includes a mixture of matters. The list informs the meaning of the phrase and not the other way around. As South African courts also enforces and elaborates on the common law, same as the UK courts, our courts would surely follow the same approach.
It is therefore advisable that contracting parties should be cautious to rely on a clause that is headed with “force majeure” or merely a clause that contains these words, but which does not elaborate on what the specific circumstances and requirements are that the parties rely on, therefore what the parties purport force majeure to be. Parties are therefore advised to ensure that a detailed list and definition of the clause is stated, for example listing certain events that would constitute a force majeure, such as a pandemic, otherwise the parties may risk to be drawn into a debate over what constitutes force majeure, and therefore be subjected to ensuing legal actions as the current pandemic and ensuing lockdown may possibly not establish a force majeure event in terms of their contract`s definition.
Parties should also be wary of solely relying on a force majeure clause to relax their liability, as the court stated in its obiter dictum remark in the matter of Joint Venture between Aveng (Africa) (Pty) Ltd and Strabag International GmbH v South African National Roads Agency SOC Limited and Another [2019] 3 All SA 186(GP) that the contract as entered into between the parties compelled the parties to take steps to resolve disputes should any disputes arise. Thereby the court adopted an objective test in determining what constituted “force majeure” as declared in their agreement, the court furthermore declared that the circumstances relied upon by the applicant could have been overcome and therefore, could not objectively be deemed to constitute force majeure. The court therefore held that a party which alleges that a force majeure event or circumstances has occurred, will not be entitled to merely deem such an event or circumstances as sufficient and thereby reserving their rights and take no measures to mitigate their damages or the force majeure event or circumstances.
It is therefore strongly advised for any party who is of the intention to enter into a contract with another party, to ensure that the ambit of a force majeure clause is properly attended to by a legal practitioner and therefore properly defined. Furthermore, if a party is of the intention to raise the allegation that a force majeure event is currently affecting their ability to perform in terms of their obligations, such as the current pandemic and national lockdown, that such party first seeks legal advice, prior to raising such an allegation, or the party may risk that they perform a breach of contract. It is therefore advised that an allegation made by a party to a contract that a force majeure event has occurred due to the national lockdown, may not be deemed sufficient by either the opposing party or the court, as certain criteria must be met to be successful in raising the allegation of a existing force majeure event.