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.
