On 11 March 2020, the World Health Organisation declared the novel Coronavirus or COVID-19, a pandemic. In an effort to curb the spread of the virus, many countries have seen it fit to call for a total lockdown, and have remanded its citizens to stay indoors for a period of time. South Africa was no exception.
During his Address to the Nation on 23 March 2020, President Cyril Ramaphosa announced a total lockdown from midnight on Thursday, 26 March 2020 until 16 April 2020, in an effort to curb the rapid spread of COVID-19. The lockdown has the effect of rendering all South Africa citizens homebound, except for citizens who render essential services.
But what about contracting parties who are required to perform in terms of a contract during the lockdown period which fall out of the ambit of essential services? Are they able to invoke the force majeure clause in the contract? Does COVID-19 fall into the category of force majeure?
Failure by a party to perform their obligation/s in terms of a contract is a breach of the contract, and the innocent party may claim certain legal remedies from the defaulting party. Should a party be unable to perform its obligation/s due to an unforeseen event or occurrence which renders the performance impossible, the force majeure clause becomes vitally important.
Force majeure clauses are not the only mechanisms that can be relied upon in the circumstances of a national lockdown. There is a common law concept known as “supervening impossibility of performance” which may be applicable in many instances. We will be releasing a separate note on the common law position. Once again, we remind clients that we are available to consult (electronically/telephonically) on any of these matters.
What is Force Majeure?
The term force majeure (or vis-major) loosely translates to “superior force”. A force majeure clause regulates the liability of the parties, and the effect on the contract, when an extraordinary event or circumstance beyond the control of the contracting parties prevents one or both parties from fulfilling their obligations, under the contract (Hutchison et al. 2012, p. 496).
The clause can be drafted in a narrow sense with an exhaustive list of events that would qualify as force majeure events, or in a wide sense and indicative, which would include a wider range of events or occurrences not expressly listed in the clause. The effect of this clause prevents the innocent party from claiming damages from the defaulting party as a result of a force majeure event.
Generally speaking, a force majeure event is one that is required to be:
- unforeseeable at the time the parties enter into the contract;
- unavoidable; and
- impossible to overcome by either or both of the parties.
Force Majeure Clauses in Contracts
Force majeure clauses, and the contents contained therein, differ from contract to contract, and the COVID-19 virus would not be specifically catered for in a contract. However, at a minimum, the clause should at least contain certain events or circumstances (for example war; terrorist activities; so-called acts of god; famine; and so forth), which should not have reasonably been foreseen, and the occurrence of which would not allow the innocent party to seek damages against the defaulting party.
So, does COVID-19 allow a party to rely on a force majeure clause? The wording of a force majeure clause would be very important in establishing whether the clause is exhaustive or whether the clause includes a catch all phrase, for example, ”any event arising beyond the control of the parties” would have to be established.
In the former instance, it is dependent on which events or occurrences have been listed in the clause. This would entail interpreting the clause and ascertaining which events have been catered for, and whether or not the COVID-19 virus falls into one of the listed events or occurrences. For example, if the clause does not list an endemic/pandemic or disease as an event or occurrence, and there is no catch all phrase and a party may be open to legal action being instituted for breach of contract. This could be in the form of damages or specific performance.
Conversely, should the clause list an endemic/pandemic or disease as an event or occurrence, the defaulting party may rely on the clause to prevent the innocent party from claiming damages or specific performance.
In the latter instance, where the force majeure clause includes the catch all phrase “any event arising beyond the control of the parties”, argument can well be made that the COVID-19 virus, and the effects thereof, is included in the catch all phrase and therefore the defaulting party may invoke this clause to prevent a breach of contract, and prevent the innocent party from claiming damages or specific performance as a result.
Depending on the wording of your force majeure clause, the way in which the force majeure clause is drafted, and whether nor not the clause lists specific events, or whether it includes the catch all phrase, the defaulting party may invoke the force majeure clause and prevent the innocent party from instituting legal action for breach of contract.
We would advise all businesses to review their contracts in order to ascertain which contracts may be (or may have been) effected by the recent Covid-19 pandemic, and ways in which to prevent or limit the effect of the pandemic on the performance of your obligations.
Businesses that have a force majeure clause in their contracts, should keep the following questions in mind, namely:
- what is the nature of the agreement/contract?
- how is the clause drafted?
- what events/occurrences have been specifically listed in the clause, and which events/occurrences have not been listed?
- is the event/occurrence (on which you are relying) out of the parties’ control?
- can the effect of the event/occurrence be avoided by the implementation of appropriate measures?
- does the event/occurrence render performance impossible, or does the event/occurrence make performance more challenging or costly?
If you wish to rely on the force majeure clause in your written contract where provision is made for an endemic/pandemic or outbreak of disease, you would be required to send out a written notice to all parties to the agreement, advising that due to circumstances out of your control (for example the lockdown), it is impossible to render the performance at this stage. The timing, format and delivery mechanisms for such notice will depend largely on the specific requirements of the contract. Following the transmission of the notice, performance will be suspended during the period of the force majeure.
As each clause in a contract is different, we would recommend that you contact one of our experienced commercial attorneys who will review your contract, and advise you on the impact of COVID-19 and the force majeure clause, and provide you with clarity regarding the possible legal implications to your business. If you wish to rely on a force majeure clause in your contract and are required to notify a party that you have contracted with, please visit our website and open the contract zone tab to obtain a force majeure Notice.
*** Please note that this blog post (and the information contained herein) is to be used to inform members of the public. This blog post (and the information contained herein) should not be construed as being legal advice, and members of the public are advised to consult their legal practitioner where possible. Harris Billings Incorporated will not be held liable for any damages suffered as a result of reliance on this blog post (or the information contained herein). ***