Coronavirus Covid 19 – Force Majeure

Can a Party to a contract rely on Force Majeure during lock down and therefore be excused from performing their obligations in terms of the contract?

Force Majeure is a common clause in contracts that essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, plague, or an event described by the legal term act of God (hurricane, flood, earthquake, volcanic eruption, etc.), prevents one or both parties from fulfilling their obligations under the contract. In practice, most Force Majeure clauses do not excuse a party’s non-performance entirely, but only suspend it for the duration of the Force Majeure.  Accordingly, through no fault of a party, it is impossible to perform.

Contracting Parties are asking the question as to whether the Coronavirus lock down constitutes a Force Majeure. The answer is not a simple answer as the question is dependent on whether or not there is a contract in place which regulates a Force Majeure and to what extent our common law applies.

Introduction

On 25 March 2020, President Cyril Ramaphosa declared a national lock down, to commence on 27 March 2020 and to terminate on 16 April 2020 (or such extended period, as may be required).

As a result of the lock down, only businesses that provide essential services can operate. The effect is that most businesses have had to close their doors during the lock period, with the effect that they cannot perform in terms of the contracts which they have with 3^rd parties. This would include (but not limited to) for example lease agreements and customer agreements.

In general, a party to a contract who fails to perform their obligations would be in breach of the contract, entitling the other contracting party to enforce their legal remedies.  In the event of a Force Majeure, a party to a contract who cannot perform as a result of a Force Majeure event, is excused from performing during the Force Majeure period (their obligations are suspended during such period / the other contracting party cannot sue for breach of contract).

In order to determine whether you can rely on a Force Majeure event (as in the case with the Coronavirus lock down), the first step is to determine whether there is a Force Majeure clause in the contract and what has been agreed by the parties. 

Force Majeure Clauses in contracts

Usually such a clause, will define what constitutes a Force Majeure event (for example an act of god, strikes, war), the obligations of the parties during the period, notice periods, a requirement to mitigate the effects and possibly a right to  terminate the agreement after a period of time, should the Force Majeure continue to exist.

In the event that there is no agreement in respect of Force Majeure, a contracting party would have to rely on our common law.

Common Law

If common law applies, the parties to the contract would have to rely on Supervening Impossibility. In this case, there are certain conditions that must be fulfilled in order for a Force Majeure to trigger impossibility to perform. These are:

• the impossibility must be objectively impossible;
• it must be absolute as opposed to probable;
• it must be absolute as opposed to relative, in other words if it relates to something that can in general be done, but the one party seeking to escape liability cannot personally perform, such party remains liable in contract;
• the impossibility must be unavoidable by a reasonable person;
• it must not be the fault of either party; and
• the mere fact that a disaster or event was foreseeable, does not necessarily mean that it ought to have been foreseeable or that it is avoidable by a reasonable person.

The general effect of a Force Majeure is that parties are excused from their obligations. This means that a party who validly fails to perform as a result of a Force Majeure cannot be sued for any damages suffered by the other party as a result of the non-performance of the other.

Is COVID-19 an event of Force Majeure?

In the event where a complete lock-down has been communicated and, as a result, contractual performance is rendered impossible, contracting parties would then be able to rely on a Force Majeure clause or rely on the principles of the common law