The effect of failure to adhere to deadlines under lockdown

A client asked: What happens to time periods stipulated in contracts during this lock down, when compliance would force a breach of the lockdown rules?  

In South African law, as a rule, if a person is prevented from performing his contract by vis major or casus fortuitus, he is discharged from liability.

“Vis maior means “some force, power or agency which cannot be resisted or controlled by the ordinary individual” and includes not only acts of God but also acts of man. Casus fortuitus is a species of vis maior and imports something exceptional, extraordinary or unforeseen, and which human foresight cannot be expected to anticipate, or, if it can be foreseen, it cannot be avoided by the exercise of reasonable care or caution”.

The Covid-19 pandemic is a classic case of these doctrines.

The lockdown caused by the pandemic has, in many instances, made it impossible for companies and individuals (called debtors in our case law) to carry out their end of contractual bargains.

Our law describes this inability to perform as “impossibility of performance”. As a rule,  “impossibility of performance does in general excuse the performance of a contract, but does not do so in all cases, and that we must look to the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether that general rule ought, in the particular circumstances of the case, to be applied”.

This rule applies if performance of a contract becomes impossible through no fault of the debtor (i.e. it can’t be self-created), unless the contract stipulates that the debtor bears the risk of impossibility.

Temporary impossibility

The Covid-19 pandemic may cause a temporary impossibility, which does not automatically bring the contract to an end. Such termination depends on factors such as the materiality of the term involved and whether final impossibility is inevitable.

Some examples.

Cancelled holidays and flights

Many people had to cancel their holidays because of the supervening impossibility caused by the pandemic. Does this entitle them to a full refund?

In World Leisure Holidays (Pty) Ltd v Georges a tour operator had to cancel all flights because of a cyclone in Mauritius. The debtor paid the full tour price in advance. On cancellation of the flight, the debtor purported to cancel the contract, alleging breach of contract, and claimed the return of his purchase price. The tour operator relied on supervening impossibility of performance, and on a clause in the contract which provided for forfeiture of the tour price if passengers cancelled within two weeks' of the date of departure. The court found that there had been no breach by the tour operator which entitled the debtor to cancel the contract, as the tour operator's contractual obligations were suspended for the duration of the impossibility. Temporary impossibility was also not a ground on which the debtor could rely.

Basically, the tour could have taken place, later. The consequence is that the standard terms and conditions came into operation, with the result that the debtor forfeited the total tour price.

Thus, temporary impossibility of performance does not of itself bring a contract to an immediate end. It would only end where the foundation of the contract has been destroyed or where all or part of the performance is already, or would inevitably become, impossible.

“In every case a value judgment, based on objective criteria, will be required to establish whether it is just that the bargain should, to the extent still possible, be upheld and the obligations of the parties adjusted. On the one hand, the court should not make a new contract for the parties. On the other hand, neither party should be allowed to escape its obligations where the essence of the contract is still capable of performance”.

As a rule, if performance becomes temporarily impossible, the obligation is not extinguished but is merely suspended for the period during which the impossibility continues and with it any reciprocal obligation is suspended.

Penalty clauses in building contracts

A contractor undertakes to complete building works by a specific date or face penalties because of late performance. It cannot do so because of the lockdown. Whether the penalties can be imposed will depend on the terms of the building contract and the application of the law mentioned above. A sensible approach – to avoid lengthy and costly litigation - would be for the parties to delay completion of the project, by agreement.

Fixed term employment contracts

If the pandemic makes it objectively impossible for a contractor to perform (say a consultant job for six months) the contract is terminated, and no performance is required of either party. However, mere temporary inability to perform does not terminate the employment contract because it is required that the inability should continue for an unreasonable period or be of a permanent nature.

Immovable property - delay in transfer

The Deeds Office is closed so all property transfers are on hold. This delay would not be a factor entitling the seller to cancel the sale. I.e. The delay in effecting registration of transfer could not be construed as a repudiation of the contract by the seller.

New residential leases

All tenants who were due to move at the end of March can only do so after midnight on April 30 as the State of Disaster regulations prohibit them from moving from their current leased premises to their new home during the lockdown period.

These tenants are not obliged to pay rent to both landlords, the new landlord cannot let the property to someone else during lockdown (as there is a new lease in place), even if it is empty, and the “old” landlord is prevented from commencing eviction proceedings. This is a triple whammy for the tenant and both landlords.

It makes sense that arrangements are struck that the tenant at least pays rent to the existing landlord for the duration of the lockdown. Unfortunately, this may not be possible if the tenant has lost his job. Hopefully, State aid will assist, somehow.