Implied terms in an agreement – Force Majeure
In our earlier communication about force majeure, we advised you that we would inform you as to the position of our law if a contract does not contain a force majeure clause. You will recall that we advised that if a contract does have a force majeure clause then in all likelihood the courts would limit the ambit of what is a force majeure to those circumstances described in the agreement. The reason behind this is that the courts are likely to state that the parties had the opportunity to consider force majeure, and indeed did so, and described in the agreement what will be considered by them to be a force majeure and the consequences thereof.
In the absence of a force majeure clause in an agreement or in the case of an oral agreement, a party who wishes to allege that force majeure should apply would have to allege that the force majeure was an implied term or provision of the agreement between the parties.
The English Law principle established in Reigate v Union Manufacturing Co (Ramsbottom) 1918 1 KB 592 states that in order to determine whether a clause can be implied in an agreement the question should be “what would the parties have said if the circumstances had been placed before them at the time that the agreement was entered into.” This test has been accepted into our law and was relied on by the Constitutional Court in Food & Allied Workers Union v Ngcobo NO & another (2013) 34 ILJ 3061 (CC).
In considering what the parties would have said at the time that the agreement was entered into, the Court would not look at the parties subjectively. In other words, the parties to the agreement would not be asked what they specifically would have said because, after the fact, involved parties’ commentary would be clouded by their own self-interest. Instead, the Court would look at what a reasonable person or reasonable bystander sitting at the negotiation table at the time that the agreement was concluded would have said had the issue been raised. We will in a later communication and deal with the issue of “a reasonable person”.
It seems that without a doubt had a reasonable person been asked at the time that an agreement was being entered into whether one or another of the parties would be excused from making performance in the circumstances where as a result of an international pandemic such as Covid-19 where governments had declared states of emergency and compelled lockdowns, that his/her answer would have been an emphatic yes.
We suspect however that there may well be circumstances where there could be degrees to which a party may be excused from its performance. Again this degree is something which could have been answered by a question to the reasonable person at the time that the agreement was being entered into. For example, if at the time that an oral agreement of lease was entered into which did not incorporate a force majeure clause, the parties were asked whether a tenant should pay the rental during a lockdown period if the tenant could not use the premises for commercial gain, one would suspect that the initial answer would be “no”. However, if one takes the matter a little further and says to the reasonable person “but the tenant will have all of his goods stored in the property and the landlord would have to provide security at the property on an ongoing basis and certain other services so that when the lockdown is lifted the tenant will be able to resume his commercial activity” then the answer of the reasonable person might not be a simple and emphatic “no”. Clearly the parties would have agreed, had they applied their minds to the situation, that some portion of the rental would have been paid by the tenant to the landlord during this lockdown period. This will no doubt be the case in almost every single circumstance.
Once again our clients are in the circumstances warned not to simply attempt to rely on force majeure and should consult with an attorney before attempting to rely on the provisions of force majeure.
The unlawful reliance on a force majeure, where the same is contained in an agreement or is alleged by way of an implied term, may well constitute a breach of an agreement by the party who unlawfully attempts to rely on such a force majeure clause. This may also constitute an anticipatory breach of the agreement giving rise to consequences which may not be the desired consequences. In a future article, we will give more explanation in regard to the issue of unlawful reliance on a force majeure clause or the commission of an anticipatory breach of provisions of an agreement.