Force Majeure, COVID-19, and Practical Decision-Making

INTRODUCTION

Briefly put, force majeure is a Latin legal term which refers to a specific incident that occurs which is uncontrollable and usually unforeseeable (also known as an Act of God or casus fortuitus). Broadly speaking, it refers to any force, or event, of nature or man, that is inevitable, unforeseeable and irresistible by human means. Some examples include natural disasters, piracy on board ships, riots (strikes, commotion and unavoidable disorder), and lockout by persons other than the contractors themselves.

It has been used by persons in a contractual relationship where one party is unable to perform an obligation owing to a force majeure having taken place. Legally, this means that there is an overarching or supervening impossibility i.e. it becomes impossible for both Parties to honour obligations in terms of a contract.

COVID-19 CLIMATE

The COVID-19 pandemic has introduced the necessary but very onerous Lockdown phase emanating from Regulations in terms of the Disaster Management Act; it has restricted one’s access to certain facilities as well as one’s freedom of movement. Whilst the restrictions are somewhat justified (and have not been constitutionally tested as yet), a commercially relevant question then comes to mind: what happens if the consequences of this Lockdown make it impossible for either to perform in terms of their contracts? Would you be able to claim force majeure in order to be relieved from this burden? If so, how could I or should I go about this?

There is no easy answer and the answer itself is not a simple yes or a no. It is entirely dependent on the set of facts and circumstances that are present in your specific scenario.

THE LEGALITIES

The requirements for force majeure have been summarised below:

1. The supervening impossibility must render obligations to be objectively and permanently impossible;
2. The impossibility must be due to no fault of either Party;
3. Supervening impossibility usually results in termination of the obligation.

Not all contracts cater for force majeure. The purpose of including a provision for it in a contract is to allow for a reasonable limitation to the strict liability that comes with rendering performance of obligations in a contract. It also protects against a damages claim which usually flows from termination of obligations. The effects of a Party successfully invoking force majeure as a defence to performance when claimed is that the obligation / duty is extinguished.

Where it is catered for in a contract, the following characteristics are usually present:

1. An exceptional event or circumstances must have taken place;
2. which is/are beyond a Party’s control,
3. which such Party(s) could not reasonably have provided against before entering into the Contract;
4. which, having arisen, such Party(s) could not reasonably have avoided or overcome, and
5. which is/are not substantially attributable to the other Party.

Even if the contract does not specifically cater for force majeure, supervening impossibility still forms part of common law and may be invoked.

WHAT YOU NEED TO DO

The major component of a force majeure claim is the objectivity of the assessment. If you are seeking to invoke a pre-existing force majeure clause, or wish to invoke supervening impossibility as a matter of law, it must be shown that the objective reason for impossibility is directly related to the consequences of incident in question. In this case, there must be a direct correlation between the inability to perform and the effect on you of the Regulations in terms of the Disaster Management Act.

It is not enough to simply show a supervening impossibility; the next practical step would be to consider the relief you wish to seek therefrom i.e. extinguishing obligations, delaying obligations, or partial redaction of obligations. Strictly speaking, supervening impossibility or force majeure terminates obligations. However, it may not be commercially suitable for you to do opt for this.

If the magnitude of the impossibility renders the continued existence of the contract impossible, it serves to reason that the obligations ought to be extinguished. However, if the prevailing circumstances for impossibility are such that rendering partial or delayed performance is not only possible, but also the most commercially-viable option, then one must explore this option first, over complete termination.

Many people are suffering in this political and economic climate, and if you are reading this article, you may be one of them. However, many decisions are made in desperation and then regretted later on. Bearing in mind that if everyone sought to cancel their contracts owing to the force majeure that is the COVID-19 pandemic, there would be nothing left of this economy within which its people could live and thrive. My advice is therefore to look at the most commercially-viable option that suits your set of circumstances i.e. long-term as opposed to short-term oriented decision-making. This is a subjective exercise. In a contractual scenario, this type of force majeure or supervening impossibility will affect both Parties. It may require a compromise by both Parties, but it will in all likelihood avoid arduously time-consuming expensive legal battles and complete financial crippling of the Parties and the Market.

For example: you are the landlord of a commercial premises that is not considered an essential service, and thus, you will be required to have your shop closed for the duration of the lockdown period. Inasmuch as your sales will be drastically reduced, your commercial space is still occupied by you and your goods for the duration of the lockdown. In this type of situation, it is best to approach the landlord and reach an interim agreement which suits both Parties on the payment of rental and other expenses due insofar as this will be possible, as opposed to simply exiting entirely from the contract.

CONCLUSION

Whilst it is clear that the current political climate may be considered a force majeure or serve as a supervening impossibility for the purposes of contractual obligations, not all contracts are suited for it. It is advised that you consider your circumstances objectively, and then consider your options subjectively. Enter into negotiations with a cooperative spirit, with or without the use of legal counsel. If you need guidance on this aspect, please speak to us.

Aleisha Oliver