FORCE MAJEURE (WHAT NOW?)
27 April 2020
The 27th of March 2020 is a date which will probably be remembered forever in the annals of South Africa’s history as the date on which the nationwide lockdown enacted by President Cyril Ramaphosa commenced in our country’s combat against the COVID-19 pandemic.
While COVID-19 and our response to the virus are no doubt somewhat unprecedented, similar global catastrophes in the past have had an immense effect on the way modern contracts are drafted by lawyers. History has taught generation after generation the proverbial lesson of ‘expect the unexpected’. The pursuit of many forms of business have been rendered unlawful for the duration of the lockdown resulting in a host of enterprises having to face the full brunt of the financial bloodbath experienced by the greater economy. Countless employees are forced to work from home for the duration of the lockdown and many are finding it impossible to honour obligations embedded in contractual agreements or perform in conformity therewith. This in turn has led to intensified debate and analysis of the so-called ‘force majeure’ principle (which many contractual parties have regarded as a saving grace). The purpose of this article is to provide a broad overview of the force majeure concept as well as to demonstrate its practical application in non-elaborate detail.
Force Majeure (Vis Major)
Prior to delving into any sort of practical application, it is necessary to provide a brief explanation of what exactly force majeure is. Force majeure (also referred to as vis major) is a Latin term meaning “superior force” and is used to describe an irresistible natural occurrence that causes damage or disruption that is neither caused by nor preventable by humans. It isn’t really possible to provide an exhaustive list of events which would fall with the ambit of this definition. By way of example however, force majeure would extend to items such as war, invasion, earthquakes, pestilence or illness, abnormal storms, floods, snow, frost, incessant rain, heat or drought, fires, acts of state and even expropriation.
The general rule in South African law as relates to impossibility of performance occasioned by force majeure is dealt with in the case of Peters, Flamman & Co v Kokstad Municipality 1919 AD 427 in which the court stated that “if a person is prevented from performing his contract by vis major or casus fortuitus… he is discharged from liability.”
Force majeure and contracts
In present day agreements, a force majeure clause is common, as contracting parties seek to protect themselves from events which are beyond their control and could lead to non-performance. Force majeure provisions either have a narrow or wide interpretation, with the former providing for specific events and the latter encompassing wording such as “any event arising beyond the control of the parties which renders performance impossible”.
In determining the application of force majeure in relation to a particular contractual relationship, it is of extreme importance that the contract be carefully scrutinized. The terms of the contract often also dictate the manner in which a party seeking to rely on a force majeure event for purposes of excusing some sort of contractual performance is to invoke the appliable entitlement (inclusive of time-barring provisions).
Should a contracting party trigger a force majeure clause incorrectly, such action could in certain circumstances amount to a breach of contract or repudiation enabling the counterparty to claim damages and/or cancellation of the contract. Reliance on any sort of force majeure provision thus requires consideration and should probably not be exercised without consulting your attorney.
Force majeure and common law
Should no force majeure clause be contained in a contract, the common law serves as a guiding light. In order for a contracting party to successfully rely on force majeure for purpose of excusing contractual performance, the common law requires performance to be (objectively considered) impossible and not just a mere inconvenience or economically burdensome. This essentially means that not every force majeure event would discharge a party’s liability in terms of a contract, and that a detailed analysis of the specific event is required.
In undertaking an analysis of the above, the court in the matter of MV Snow Crystal, Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal 2008 (4) SA 111 (SCA) stated that one is to “look at the nature of the contract, the relation[ship] of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether the general rule ought, in the particular circumstances of the case, to be applied”.
An important distinction must be struck in distinguishing between performance which is objectively impossible as opposed to that which is absolutely impossible as discussed in Unibank Savings & Loans v ABSA Bank 2000 (4) SA 191 (W). A party will be excused from performance if such performance will be unlawful (i.e. not absolutely possible but well objectively impossible) on account of an amendment to a particular item of legislation following the date on which the agreement was entered into. The most common examples of this are export and import prohibitions of certain goods. In the current COVID-19 context, the implementation of the nationwide lockdown has rendered it unlawful for anyone (other than the now well publicized exceptions) to conduct business other than those relating to essential services and goods. The lockdown would thus (in the absence of a contractual provision to the contrary) constitute a force majeure event in a variety of contractual relationships as many businesses would not be able to lawfully conduct their operations required to fulfil or undertake contractual obligations. As parties are able to vary the common law force majeure provisions, each contract will have to be carefully scrutinized to determine the effect thereof on the particular contractual relationship.
The importance of including a properly worded and carefully considered force majeure clause in a contract should thus not be taken lightly.
The force majeure’s effect
The effect of a force majeure rendering performance impossible is the extinguishment of obligations due by the parties essentially nullifying a claim for damages in relation to non-performance. The technicalities relating to claims for enrichment are not dealt with in this article.
So how long can one rely on a force majeure?
There is an inherent common understanding between contracting parties (if not expressly provided for in the agreement), that force majeure can be relied upon for its duration, after which the parties will (with the necessary amendments) once again be required to perform their obligations in terms of the applicable contract. Of extreme importance is the fact that the COVID-19 pandemic in South Africa, and indeed globally, is an ever-changing and ever-developing situation. This in turn requires an appreciation of the fact that what constitutes a force majeure event today, might not amount to same in the coming days, weeks or months ahead.
In light of the above, it is advised that contracting parties should consult with their attorneys to ensure carefully considered force majeure clauses are inserted in their contracts, as failure to do so may have severe adverse effects for at least one of the parties.