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Conditions required to trigger force majeure

Publish date: 02 April 2020
Issue Number: 114
Diary: CompliNEWS
Category: Covid-19

Legalbrief Today Issue 4909

‘We have already seen the economic and business impact of Covid-19 in China, Italy and Japan and it is almost inevitable that this will spread to the rest of the world. It is thus important for companies to take proactive steps to ensure that they can fulfil their contractual obligations in the upcoming months and that the parties they are contracting with are doing the same in order to prevent the need for invoking a force majeure clause.’ Cliffe Dekker Hofmeyr’s Justine Krige, Lucinde Rhoodie and Pauline Manaka note that SA law is more ‘strict’ than common law in that it does not excuse the performance of a contract in all cases of force majeure, as was held by the court in Glencore Grain Africa (Pty) Ltd v Du Plessis NO & Others. In their analysis on the Cliffe Dekker Hofmeyr website, the authors point out that certain conditions must be fulfilled in order for a force majeure to trigger the type of impossibility that extinguishes a party’s contractual obligations. 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;

* It 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; In each case the law will take certain considerations into account.

 

The SCA – in Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal – set out these considerations to be ‘the nature of the contract, the relation 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’. The authors point out that most well advised contracts contain a force majeure clause. The court in Airports Company of SA Ltd v BP Southern Africa (Pty) Ltd and Others confirmed that where the parties made provision for this contractually, the consequences stipulated in the contract will take precedence over those in common law. The authors add that where companies had the foresight to include a force majeure clause with general terms – such as ‘disease or illness’ or more specific terms such as ‘epidemic or pandemic’ – it is possible that Covid-19 has already triggered this clause. However, they should take steps to mitigate the impact of the further spread of the virus – including mitigating the impact of restricted travel, seeking alternative streams of supply, implementing effective remote working for employees and determining whether certain operational functions can be moved to different locations. ‘In the case that a dispute arises where a defaulting party wishes to rely on force majeure, whether contractually or in terms of common law, the court will generally look at whether reasonable steps were taken by either party to mitigate the risks in advance.’ They add: ‘It is also recommended that companies review their insurance policies potentially covering an event such as Covid-19. In the same way that our government and healthcare systems are being proactive in mitigating the spread of the virus, businesses can be proactive in mitigating the economic and legal consequences arising from the spread of the virus.’

 

Full analysis on the Cliffe Dekker Hofmeyr website

Glencore Grain Africa (Pty) Ltd v Du Plessis NO & Others

Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal

Airports Company of SA Ltd v BP Southern Africa (Pty) Ltd and Others

 

‘It is likely that businesses will start to receive (if they have not already) force majeure notices from their suppliers, contractors and service providers – especially if these entities are located in the Covid-19 ‘hotspots’ such as China, Italy or Iran.’ Writing in Business Day, Fasken’s Katy-Lynne Kay and Antoinette van der Merwe say that while a party may be excused from its performance under the contract while the force majeure continues, there is usually an obligation to use all commercially reasonable efforts to alleviate and mitigate the cause and effect of the force majeure event and resume performance of its obligations once it is able to do so. ‘However, if the stoppage continues for an extended period, there is sometimes a right to terminate the contract by either party.’ Noting that not all contracts have force majeure clauses, the authors say that in these cases, an affected party would have to rely on the doctrine of supervening impossibility. ‘As a general rule, this will relieve a contracting party of liability for non-performance if such impossibility is not reasonably foreseen by the parties at the time they entered into the contract (despite it being within the bounds of human foresight) and provided that the affected party did not contribute to the circumstances giving rise to the impossibility of performance.’ Contracting parties affected by Covid-19 may – in certain circumstances – seek to rely on the doctrine of supervening impossibility ‘if the SA law-governed contract is silent on force majeure’. The authors add that the party could rely on the doctrine on the basis that Covid-19 is an occurrence it could not have reasonably foreseen. ‘The party wishing to invoke supervening impossibility has the onus of proving that the performance is objectively impossible and that the impossibility cannot be avoided by a reasonable person.’ While they acknowledge that doctrine offers a measure of relief in law, they argue that the inclusion of ‘a well-drafted force majeure clause in a contract may be more beneficial to the contracting parties’.

Full analysis in Business Day

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