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COVID-19 and force majeure events

South Africa is in the grips of an unprecedented crisis, one which will have far-reaching and lasting economic, social and environmental consequences for years to come. In the wake of the World Health Organization having declared COVID-19 a global pandemic, the Minister of Cooperative Governance and Traditional Affairs declared the outbreak a national disaster on 15 March 2020. Regulations have since been published putting in place strict measures to prevent an escalation of the disaster or to alleviate, contain and minimise the effects of the disaster. In addition to the stringent measures already in place, President Ramaphosa announced on 23 March 2020 a total nationwide lockdown, which will be in place for 21 days from midnight on Thursday, 26 March 2020.

Businesses across the country are understandably concerned about not only their longevity, but what will happen to existing contractual obligations in the face of a situation which, in many instances, renders some or all of those obligations incapable of performance. With social distancing, self-isolation and national lockdown now a reality, many businesses will turn to their contracts, and specifically force majeure clauses, in an attempt to mitigate potential losses as a result of circumstances arising as a result of COVID-19.

A force majeure clause provides a legal mechanism which may be invoked by a party obliged to perform in terms of the contract where an unforeseen event, beyond the party’s control, hinders performance. However, a party relying on a force majeure clause in a contract will need to carefully scrutinise how such an event is defined in order to establish whether COVID-19 falls within the parameters of what is contemplated by the contract. In some instances, a contract will include a closed list of events (such as war, riot, earthquakes or strikes) which constitute force majeure events. Other contracts may define force majeure events more broadly, or include language which lends itself to the inclusion of COVID-19-related circumstances.

In order for a contracting party to be able to invoke a force majeure clause thereby escaping liability, the supervening event must have been unforeseen, and beyond the control of the parties (Peters Flamman and Co v Kokstad Municipality 1919 AD 427). However, even if an event qualifies as force majeure under a contract and so allows a party to suspend contractual performance until the event passes, the contract may provide for continued performance of those clauses not affected by a force majeure event. Parties seeking to rely on force majeure clauses must consequently be wary of throwing the baby out with the bathwater and risking contractual liability for non-performance of obligations which are unaffected by force majeure events and thus remain enforceable (such as, for example, provisions requiring the payment of insurance in contracts for rendering services).

A party relying on a force majeure for non-performance is also expected to take reasonable measures to mitigate its loss as a result of the event (Joint Venture between Aveng (Africa) (Pty) Ltd and Strabag International GmbH v South African National Roads Agency SOC Ltd and Another [2019] 3 All SA 186(GP)) and comply with specified notice procedures, should these be detailed in the contract.

As South Africa prepares for a national lockdown, the long-term consequences of COVID-19 are increasingly uncertain. While the pandemic will hopefully have positive ramifications in the environmental context (including reduced emissions as a result of significantly reduced air travel, and reduction of wildlife trade and consumption in the wake of allegations that COVID-19 originated from pangolin), the economic consequences will undoubtedly be significant. Parties are encouraged to scrutinise their contractual obligations during this time, and seek legal advice in the event of uncertainty surrounding invoking force majeure clauses.

Kate Handley
25 March 2020