Understanding Force Majeure
By now we are certain that you have all heard of the term force majeure. Even the President utilised it in one of his addresses to the Nation asking business people not to invoke the provisions of force majeure to avoid complying with contractual obligations. But what exactly is this term and when can it be invoked by a party.
FORCE MAJEURE is derived from French and Roman law. In essence, it is a term that is founded by fairness. It embodies the principle that where a party is unable to comply with its contractual obligations through no fault of its own, it will not be held to the consequences of such non-compliance. The general requirements for this attitude to be adopted by a party are that the circumstances must have been unforeseeable and out of control of the parties and that the performance by a party must be objectively impossible. The most common examples of such circumstances are those envisaged by so-called “acts of God” for example hurricanes, floods and earthquakes. The term further envisages human acts such as strikes, arson and theft. These circumstances have been extended by the Courts to include state action that prevents parties from complying with their contractual obligations. Accordingly, it is our view that in certain circumstances a national lockdown, for however long it lasts, may well fall within the definition of force majeure.
The particular circumstances however of whether the parties have or could have complied with their contractual obligations will have to be examined. The mere fact of a national lockdown will not in itself determine that the parties could not comply with their obligations.
Parties to a contract are essentially left to their own devices and are able to contract as they wish subject only to the legality of an agreement. It has accordingly become fairly common practice for parties, especially in more complex agreements, to include a force majeure clause in that agreement. It is common that such clauses will determine what constitutes a force majeure event and what the consequences of such event occurring will be on the contractual rights and obligations of the parties. Should such a clause be inserted into an agreement, its express terms will be determinative of the consequences. In this regard, the Courts have generally sought to ensure that the parties remain bound to the terms of the force majeure clause as contained in the contract without making reference to any general principles or another area of the law known as the common law. Accordingly, the exact terms of the force majeure clause will be determinative of the consequences.
Should a contract however not contain a force majeure clause then the parties will be required to rely on the common law. Our common law does not specifically make reference to force majeure but rather deals with something known as a supervening impossibility. Accordingly, in order to comply with the common law defence of supervening impossibility, a party will have to prove that the performance of its contractual obligations is objectively impossible and not merely more burdensome than in the ordinary circumstances. Furthermore, the party wishing to rely on the common law must prove that the event was unforeseen by the parties at the time that the contract was concluded. When determining whether the circumstances constitute supervening impossibility the Courts will be required to conduct a value judgment by considering the nature of the contract, the relationship between the parties, the nature of the impossibility and the specific circumstances of the case.
The Courts may well in making such consideration decide to look at what, if any, were the implied terms of the agreement if such implied terms were not excluded by the very provisions of the agreement.
We will in a follow-up article discuss implied terms, when such implied terms may be invoked or when they may be excluded. We will also examine where implied terms are not excluded how the Courts may look at such implied terms.
Relevant Case Law
One of the most prevalent questions at the moment deals with commercial leases. Many of the principles relevant to force majeure and supervening impossibility were established in the early 1900s and have remained largely unchanged. In Mountstephens & Collins v Ohlssohn’s Cape Breweries 1907 TH 56 the High Court was required to decide whether a tenant was entitled to remission of rent in circumstances where they were prevented from use and enjoyment of the property. The High Court found that a lessee is entitled to a remission of rent where they have been prevented from making use of the property for the purpose for which it was let as a result of supervening impossibility. Accordingly, this case confirms the general principles apply. Parties should, however, remain cautious to merely not make payment of rental as a result of the lockdown as the terms of the lease agreement will take precedence, as discussed above. This is particularly so in terms of commercial leases that are often reduced to writing.
The general principles as they relate to supervening impossibility have also been developed by the Courts. In particular, the Supreme Court of Appeal restated the developed principles in Transnet Ltd t/a National Ports Authority v Owner of MV Snow Crystal 2008 (4) SA 111 (SCA). The SCA confirmed that as a general rule, supervening impossibility will excuse performance in terms of a contract. The Court warned that it will not always do so. Courts are required to consider the nature of the contract, the relation of the parties and the circumstances of the case. The Court furthermore confirmed that the defence will not assist a litigant where the impossibility was self-created or is due to their fault. In this regard, it is clear that the Courts will assess the circumstances and therefore parties must be cautious rather than merely refusing to perform their contractual obligations while being satisfied that supervening impossibility may ‘save’ them.
In conclusion when determining the liability of a party who has failed to perform any provision of an agreement due to the lockdown provisions: –
- The parties will first have to have reference to whether or not the agreement contains a force majeure clause, and if it does, the provisions of such clause.
- In the absence of such a clause, the parties will have to have reference to the common law for relief. In those circumstances, the party that has breached the agreement would have to prove that compliance with its obligations is objectively impossible and not merely more burdensome and that the supervening event was unforeseen at the time that the agreement was concluded. In making this assessment the Courts will also have reference to the relevant surrounding circumstances at the time that the agreement was concluded to determine whether the parties may be excused from their contractual obligations on the basis of supervening impossibility.
In all of the circumstances, legal advice should be sought prior to a party attempting to enforce force majeure. A party that incorrectly invokes a force majeure clause may well breach the agreement unlawfully and thereby give the other party the opportunity to cancel the agreement to the peril of the party that incorrectly or unlawfully invoked the force majeure clause.