The Underestimated High Risk of Contractual Provisions

Commercial contracts are usually negotiated with the expectation that both parties will perform their obligations as agreed. However, when unforeseen events disrupt performance, businesses are often faced with a difficult question of who bears the risk.

Whether the issue is a regulatory prohibition, a pandemic, a prolonged strike, supply chain disruption, or a critical infrastructure failure, the consequences can be significant. Yet many commercial disputes arise not because an unexpected event occurred, but because the contract failed to adequately address what should happen when it does. These issues were recently explored during our client webinar on contractual risk allocation and force majeure.

Contractual certainty remains the starting point

South African contract law is built upon the principle of pacta sunt servanda, meaning agreements must be honoured. Generally, a party cannot simply escape its contractual obligations because performance has become difficult, expensive, or commercially unattractive. Financial hardship, shrinking profit margins, and changing market conditions do not automatically excuse non-performance.

This principle provides certainty in commercial relationships, but it also means that parties must carefully assess what risks may arise before concluding a contract.

Difficulty does not necessarily mean impossibility

One of the most common misconceptions in commercial contracting is the assumption that a challenging situation automatically amounts to impossibility of performance.

Courts have consistently distinguished between obligations that have become more onerous and those that have become objectively impossible to perform. Increases in costs, supplier price hikes, cash-flow difficulties, or reduced demand may create commercial pressure, but they will not necessarily discharge contractual obligations. By contrast, legislation prohibiting performance, destruction of the subject matter of the contract, or other external events rendering performance objectively impossible may justify reliance on the doctrine of supervening impossibility.

The distinction is often critical, and can determine whether a party remains liable for breach.

Force Majeure is ultimately about risk allocation

Contrary to popular belief, force majeure is not a universal legal defence. In most cases, it is a contractual mechanism created and defined by the parties themselves. The key question is therefore not simply whether a disruptive event occurred, but whether the contract regards that event as force majeure and what consequences flow from it.

Poorly drafted provisions can create more uncertainty than protection. Clauses frequently fail to identify qualifying events, prescribe notice requirements, require mitigation measures, or explain what happens if the event continues for an extended period. When these issues are left unresolved, disputes become increasingly likely.

A preventative, rather than reactive approach

In our experience, the most effective contracts do more than identify extraordinary events. They allocate risk, prescribe procedures, define remedies, and create commercial certainty when disruption occurs.

Businesses should therefore move beyond asking, “What happens if something goes wrong?” and instead ask “What risks exist? Who carries them? What evidence will be required? What relief is available? And when can the contractual relationship be terminated?”

Well-drafted contracts anticipate these questions, long before any disputes arise.

If your organisation is negotiating commercial agreements, reviewing standard terms and conditions or dealing with a contractual dispute involving force majeure or impossibility of performance, obtaining specialist legal advice at an early stage can significantly reduce uncertainty and potential litigation. Our Corporate Advisory and Forensic Services team regularly advises clients on contractual risk allocation, dispute prevention, and commercial contract drafting and would be pleased to assist.

Thembeka Mbatha
Associate | BA LLB
Corporate Advisory and Forensic Services

Mbali C Ndlovu
Attorney | LLB
Corporate Advisory and Forensic Services

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