Covid 19 Pandemic and The Legal Principle of Force Majeure: A Detailed Discussion

The corona virus (Covid-19) was first reported in December 2019 following a cluster of acute respiratory illness cases in Wuhan, China. Today, Covid-19 has gone on to become a global pandemic and is continuing to spread across the globe. This deadly virus has impacted over 170 countries globally, with schools, churches and businesses being forced to close down, thus affecting contractual obligations nationally and internationally.

As a measure to combat the spread of Covid-19 in South Africa, President Cyril Ramaphosa declared the COVID-19 outbreak as a national state of disaster in terms of the Disaster Management Act on 15 March 2020. This subsequently led to a decision by The National Coronavirus Command Council to enforce a nation-wide lockdown for 21 days with effect from 26 March 2020, which was subsequently extended by a further 14 days. During this period, no business is permitted to trade without authorisation by the Department of Trade, Industry and Competition allowing the business to provide essential services.

An important question remains unaswered: what does this mean for existing contractual obligations that will now not be fulfilled?

The law makes provision for such circumstances, where an unforeseeable event causes a contract to become impossible to perform. This article will discuss the legal principle of force majuere and whether Covid-19 is an event that may give rise to the reliance on this principle. 

Force majeure is a legal mechanism which may be relied upon by parties who are under a legal obligation to carry out specific performance, but are unable to carry out such specific performance as a result of an exceptional event or circumstance which is beyond the control of those parties bearing a legal obligation.

A force majeure event is an unforeseen and superior force, event or circumstance, which is beyond the reasonable control of the contracting parties, and which renders contractual performance impossible.

There are two types of agreements that are relevant to this discussion and both scenarios will be discussed below:

1. An agreement that contains a force majeure clause; and
2. An agreement that does not contain a force majeure

An Agreement That Contains a Force Majeure Clause

It is prudent, when drafting an agreement, to include a force majeure clause that covers events such as this global pandemic. Where an agreement contains this clause, the parties to such agreement would need to consider the manner in which force majeure has been defined in the agreement in order to determine if such a definition can be interpreted in a wide manner to include Covid-19 and enable the parties to escape liability of non-performance.

In Joint Venture between Aveng (Africa) (Pty) Ltd and Strabag International GmbH v South African National Roads Agency SOC Ltd and Another [2019] 3 All SA 186(GP), the court adopted an objective approach in determining what constituted “force majeure”, as provided for in the agreement concluded between the parties, and held that the circumstances relied upon by the applicant fell outside of the contractual definition of force majeure. The court held that the applicant’s refusal to perform in terms of the provisions of the agreement, and its subsequent cancellation of the agreement on the basis of force majeure had no legal basis and, as a result, amounted to repudiation of the contract.

It is evident that it is not sufficient for the party alleging that a force majeure event or circumstance has occurred, to reserve its rights and take no measures to mitigate the force majeure event or circumstance. Any unlawful reliance on a force majeure clause may amount to repudiation of contract. In such case the other contracting party would be justified to rely on the provisions of the contract to terminate the contract and, amongst other consequences, claim for damages.

An agreement that does not contain a force majeure clause.

If an agreement does not contain a force majeure clause, or if a force majeure clause in a contract does not describe the potential unforeseen event contemplated in such a clause, then the contracting parties may be able to rely on the common law principle of ‘supervening impossibility of performance’ to suspend their obligations under the contract, provided that it has become objectively impossible for them to perform under the contract as a result of an unforeseeable and unavoidable event.

In 1919, the then Appellate Division (AD), in the well-known case of  Peters, Flamman & Co v Kokstad Muncipality 1919 AD 427, found that our law recognises that impossibility of performance is a legally permissible basis for discharging a party from performing its contractual obligation. The Appellate Division observed as follows:

“By the Civil law a contract is void if at the time of its inception its performance is impossible. … So also where a contract has become impossible of performance after it had been entered into the general rule was that the position is then the same as if it had been impossible from the beginning. … For the authorities are clear that if a person is prevented from performing his contract by vis major or casus fortuitous, under which would be included such as an Act of State as we are concerned with in this appeal, he is discharged from liability.”

 Further, the court in Bischofberger v Van Eyk 1981 (2) SA 607 (W) stated as follows:

“When the Court has to decide on the effect of impossibility of performance on a contract, the Court should first have regard to the general rule that impossibility of performance does in general excuse the performance of a contract, but does not do so in all cases, and must then look to the nature of the contract, the relation of the parties, the circumstances of the case and the nature of the impossibility to see whether the general rule ought, in the particular circumstances of the case, to be applied. In this connection regard must be had not only to the nature of the contract, but also to the causes of the impossibility. If the causes were in the contemplation of the parties, they are generally speaking bound by the contract. If, on the contrary, they were such as no human foresight could have foreseen, the obligations under the contract are extinguished. ”

In effect, this entails that when parties conclude an agreement, acknowledging that a specific event which would render performance impossible might occur, and they make no provision in the contract against that event, the implication could be made that the party pleading impossibility should not be relieved of its obligations.

But can the same conclusion be drawn where there is a supervening illegality of performance (as opposed to supervening impossibility of performance)?

In Nuclear Fuels Corporation Of Sa (Pty) Ltd V Orda Ag 1996 (4) SA 1190 (A), the Supreme Court of Appeal highlighted the difference between the supervening impossibility of performance and the supervening illegality of performance. Whereas in the case of the former, foresight and foreseeability plays a role in determining the liability of the contracting party that seeks to rely on the impossibility. In the context of supervening illegality of performance, foresight or the foreseeability of the illegality would make no difference: if it were contrary to public policy to hold the parties to their contract, it would not matter that they had or ought to have foreseen that the prohibition might arise.

In the above case the appellant had contracted in writing to sell to the respondent, a Swiss corporation, a large quantity of uranium oxide. Performance of the appellant’s obligations under the contract would have involved exporting the material. The Nuclear Energy Act 92 of 1982 (which was in force at the time) prohibited both the disposal and export of nuclear material without the written authority of the relevant Minister. At the time of concluding the contract with the respondent, the appellant had failed to meet the conditions prescribed by the Minister and was consequently prohibited from perfoming his contractual obligations of delivering the uranium. The respondent regarded the failure to deliver as wrongful repudiation and sued for damages in lieu of delivery. The appellant’s defence was that it had been released from its obligations on the grounds of impossibility of performance. The SCA found in favour of the appelant.

The consquence of this judgment is that where the performance of a contractual obligation would be rendered illegal, the liable party would be excused from performing, whether or not the possible prohibition was foreseeable or not. Thus, if one entered into an agreement to provide a service falling outside of the definition of “essential service” during South Africa’s lockdown period, that contracting party would be excused from performing the contractual obligation despite being in contemplation of the prohibition.

One must note that a force majeure clause in an agreement will take precedence over the common law (Airports Company of SA Limited v BP Southern Africa (Pty) Ltd and others [2015] JOL 34127 (GJ)). Thus, if the agreement sets out rules regarding notices, timelines and events constituting a force majeure, then the parties must abide by that and cannot rely on the common law.

Conclusion

The COVID – 19 pandemic, which has wrought havoc across the world, will no doubt place significant strain on the South African economy. An individual agreement validly concluded between legally competent parties will now have a dimension of uncertainty to it – that is, the possibility of one party having no choice but to rely on force majeure or supervening impossibility of performance in order to escape the performance of obligations under the agreement. Social cohesion and the maintenance of good business relations will be vital in ensuring that the spheres of trade and industry remain functional during this time. It will therefore be important for businessmen to carefully consider the effect which their reliance on such a clause will have on interested parties and on the business community at large before doing so.

Nkanyiso Mncube (Candidate Attorney) Umhlanga Office