Typically, force majeure clauses cover not only situations where a party may find it physically impossible to carry out its obligations, but also where new legislation or other government action renders performance legally impossible.
As at 3 April 2020 there were reportedly over 1,030, 324 reported cases of COVID 19 across the world. The virus has caused the deaths of approximately ,54, 207 people and to date no vaccine has been forthcoming. The reported figure in South Africa stands at 1462. 5 deaths have been publicised as a consequence of the virus. The initial response by the South African government was to declare the outbreak as a National Disaster and the President utilised the provisions of the Disaster Management Act in order to mitigate the spread of the virus. Measures were taken such as closing schools, restricting the sale of alcohol after 6pm and prohibiting public gatherings of more than 100 people. The situation significantly worsened and on 23 March 2020, the President addressed the nation, stating that, effective 27 March 2020 at 00h00, the Republic would be on a nation-wide lockdown. Amidst an ailing economy already in recession and reeling from power shortages, COVID-19 will only add to the plight of business in the Republic. It is abundantly clear that this virus is hostile to the human population but what is its impact on contractual obligations?
South African law recognises circumstances where a superior force, event, or circumstance beyond the control of the contracting parties takes place, which consequently results in impossibility of performance by one or more of the parties. It is sometimes incorrectly referred to as "an act of God", but the definition in commercial agreements generally extends to acts of persons as well. This type of circumstance or event is generally termed "force majeure". Generally, contracting parties make provision for this event by including a force majeure clause in their agreement. The clause serves as a precaution against the risks posed by certain economic, political and natural disaster events. It has become common practice in in South African law to include the clause in an agreement as it has the effect of limiting the parties' liability for failing to perform by suspending the parties' obligations until the cessation of the force majeure event.
Generally, the consequence of a clause of this type is that a party who is unable to perform its obligations because of a force majeure event will not face the consequences usually arising from a breach of contract, which include termination, specific performance or the payment of damages or penalties .
The events generally covered by a force majeure clause include, but are not limited to, war, hostilities (whether war be declared or not), invasion, act of foreign enemies, rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war. Owing to South Africa's protective labour laws (compared to other developing countries) the most commonly encountered force majeure events are riots, commotions, disorders, strikes or lockouts by persons other than the contractor's personnel and other employees of the contractor and sub-contractors.
Typically, force majeure clauses cover not only situations where a party may find it physically impossible to carry out its obligations but also where new legislation or other government action renders performance legally impossible.
It appears that there is little South African case law on force majeure events specifically related to epidemics or diseases. In the West African region, the most recent case of force majeure relating to disease occurred in 2014. ArcelorMittal in Liberia declared a force majeure relating to its iron ore mining operations due to an outbreak of the Ebola virus which resulted in the evacuation of thousands of its employees at its iron ore mines, causing an absolute cessation of mining operations. Invoking force majeure in its contractual arrangements with third parties was necessary to protect ArcelorMittal and prevent significant loses that could have arisen as a result of its inability to perform.
In South Africa, it has been widely reported that Anglo American Platinum ("Amplats"), in a letter to its suppliers has declared that in light of the Covid-19 crisis and the measures imposed by the President , cannot perform its obligations under the various agreements for reasons outside its reasonable control. In this regard, Amplats issued a force majeure noticeto its suppliers, the consequence of which all obligations are suspended for the duration of the force majeure period. On 30 March 2020, it was also reported that Rival Impala Platinum ("Implats") followed suit and went a step further by invoking the force majeure clause in respect of offtake agreements with both Group companies and third parties. Sibanye-Stillwatwer appears to also be in concert with Amplats and Implats as at 30 March 2020.
If a party wishes to invoke the force majeure clause in order to avoid performing its contractual obligations as a result of the COVID-19 pandemic, the clause would have to include words that clearly cater for the situation. This is on the basis that the courts will give effect to the intention of the parties to a contract. In doing so they will start with the principle that the ordinary meaning of the words used is assumed to be the meaning intended by the parties. This is known as the "ordinary meaning principle". Unless the ordinary meaning would be clearly contrary to the expressed intention of the parties, or if it leads to absurdity, the ordinary meaning principle applies.
Alternatively, even where the non-performing party is prevented, not by the pandemic itself, but by the restrictions imposed by the Government in the Regulations passed by it in order to control the spread of the COVID-19 virus, that party may be able to rely on the provision, commonly included in force majeure clauses, that includes acts of government authorities amongst the situations that exempt the affected party from performance.
Generally, parties often insert 'boilerplate' force majeure clauses into their contracts that are not tailored to the circumstances of the particular agreement, which might subsequently lead to issues if a force majeure event does materialize. It is therefore advisable that parties include force majeure clauses to deal with the specificities of their agreements.
In conclusion, a party wishing to invoke the force majeure clause in light of the COVID-19 virus would have to consider whether the clause in the contract provides for an epidemic or disease, or alternatively for government action pursuant to the epidemic or disease. As outlined above, depending on the contract, it might be beneficial to clarify whether the non-performance by third parties (such as subcontractors) constitutes force majeure.
A well drafted clause in a contract acts as a contingency plan should this unforeseen event occur. In light of the clause, it would then have to be considered whether the event of force majeure in practice renders the party's performance impossible. In the event that it does, the party invoking the clause will be able to argue that they are exempted from complying with their contractual obligations pending the cessation of the force majeure event, in this case the COVID-19 pandemic.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
