By • Pieter van Zyl | Attorney, Notary & Conveyancer | Bate Chubb & Dickson
The COVID-19 crisis has changed our lives. Our businesses have been hit hard and our personal lives upended. Many day-to-day events and activities were declared unlawful.
A few examples which spring to mind are:
A hotel had bookings which, if fulfilled, would have been unlawful.
A music show that has sold tickets with many anticipated to be in attendance.
A ship is contracted to deliver goods via a closed port.
By operation of law, these events and activities may have been made impossible. The question then arises: What does the law say when regulations make it impossible for parties to perform in terms of their contracts?
Force majeure: A force majeure clause in an agreement typically excuses non-performance of contractual obligations when an extraordinary event beyond the control of the parties prevents performance of contractual arrangements. Being excused from performance while the event continues should avoid being placed in breach of contract and limits the exposure to damages being claimed for non-performance.
Determining whether COVID-19 constitutes a force majeure will require careful consideration of the force majeure clause relied upon, the contractual obligation in question and the reasons for non-performance. Should a party wish to invoke a force majeure clause, it should be careful to meet the requirements of the contractual clause as precisely as possible.
Supervening impossibility of performance is a common law defence that suspends or terminates a party’s obligations where an irresistible force or unforeseeable accident has made fulfilment of its contractual obligations impossible. The defence applies generally to all contracts and may be relied upon in the absence of a force majeure clause. In general, our courts have restricted the scope of this defence so that it applies in very limited circumstances. However, if the alleged impossibility of performance is a consequence of COVID-19 and compliance with regulations and laws, a court might find that public policy dictates that parties should be relieved of their obligations. In the event of a supervening impossibility of performance, the risk of being placed in breach and facing a damages-claim (whilst the event continues) is minimised.
Can you cancel a contract or stop performing due to the COVID-19 crisis? Potentially yes, even if there is no force majeure clause in an agreement. Importantly, each situation will depend on its own facts and the wording of the agreement. Our courts have held that it is necessary in each case to 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 to be applied.
In light of the above it would be best to obtain legal advice moulded to your particular situation.