Covid-19, force majeure or breach of contract?- Who is liable due to “lock down”?

Home » Covid-19, force majeure or breach of contract?- Who is liable due to “lock down”?

The COVID-19 and Government imposed “lock down” has created uncertainty regarding the contractual rights and obligations of various parties in various scenarios. This is especially noted with regards to property transactions. Prior to the “lock down”, some transfers were pending registration and did not register, whilst others were registered. Consequently parties are in compromised positions as performance in terms of an offer to purchase or contract is impossible.

For example where some parties need to move out of a property, but cannot, or others need to move into a property, but cannot, due to the “lock down”. A further example of uncertainty is where occupational rent needs to be paid, depending on who needs to move in, or who needs to move out, and whether the transfer registered or not?

The question then is whether a party can rely on the concept of “force majeure” and how the concept would influence the relationship between parties to a contract.

A “force majeure” provision in a contract excuses a party from performing it’s contractual obligations because the performance becomes impossible or impracticable, due to an event or act of God which the parties could not have anticipated or controlled.

A “force majeure” provision does not invalidate any written agreement entered into but merely excuses the non performance for a period of time.

A party seeking to rely on a “force majeure” clause that is included in a contract, must first examine whether the clause caters for the occurrence of a circumstance such as the results flowing from the spread of COVID-19. This is important as “force majeure” provisions are either drafted narrowly or widely. An example of a \ narrowly drafted “force majeure” clause is when the provision specifically refers to events which may occur, such as an act of God, a strike, fire or war without making provision for any other event outside those referred to in the clause. Whilst a widely drafted “Force majeure” clause will normally, in addition to the aforesaid events referred to, include what is known as “a catch all phrase” such as “any other event arising which is beyond the control of the parties, rendering the performance impossible”. Therefore, a party seeking to rely on a “force majeure” clause due to COVID-19 must ensure that the provisions of the contract are wide enough to include this pandemic.

In the absence of a “force majeure” clause in a contact or offer to purchase the Common Law principles will apply, specifically the doctrine of “supervening impossibility of performance”. Supervening impossibility of performance means that the performance of an obligation in terms of a contract must be objectively impossible. Our courts have established that where the expected performance would merely be costly or inconvenient, it is not then necessarily objectively impossible. This has the effect that parties to a contract in terms of which performance in form of payment is expected, will still need to honour that obligation, but being unable to move or take occupation due to the “lock down” would be objectively impossible. We understand that we are dealing with situations where there is no “fault” on either side and this explanation may be difficult to accept. Therefore parties who intend to rely on either “force majeure” clauses or the Common Law doctrine of supervening impossibility are advised to obtain expert legal advice prior to doing so.

By |2020-04-02T12:25:37+00:00April 2nd, 2020|Uncategorized|0 Comments