The convergence of COVID-19 and force majeure

Posted On Wednesday, 01 April 2020 10:46 Published by
Rate this item
(1 Vote)

As the global community is grappling with COVID-19 and its ramifications, parties to commercial agreements have not been spared from panic in respect of the adverse effects of COVID-19 on commercial agreements.

Thatho_Mashishi_KPMG

The rapid spread of COVID-19 has led to certain countries taking drastic measures in an attempt to curb the outbreak, such as imposing travel bans, closing schools and institutions of higher learning. In certain instances, companies have decided to close operations completely while other companies have encouraged their employees to work remotely, where permissible, to foster social distancing.

Force majeure

Force majeure is a legal mechanism which may relied upon by parties who are under a legal obligation to carry out specific performance, but are unable to carry out such specific performance pursuant to an exceptional event or circumstance which is beyond the control of those parties bearing a legal obligation. 

COVID-19 has the potential of preventing parties to commercial agreements from performing their obligations as provisioned in commercial agreements which could trigger default events and lead to substantial losses being suffered as a result of the non-performance. 

In commercial agreements where force majeure is provided for, parties to such commercial agreements would need to consider the manner in which force majeure has been defined in order to determine if such a definition can be interpreted in a wide manner to include COVID-19 and excuse specific performance. 

In 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), the court in its obiter dictum remarked that the agreement which was concluded between the parties compelled the parties to take steps to resolve disputes should disputes arise. The court in considering the matter, adopted an objective test in determining what constituted “force majeure” as provided for in the agreement and held that the circumstances relied upon by the applicant could be overcome and therefore, could not objectively be deemed to constitute “force majeure”. The court held that the applicant’s refusal to return to the site, on which it was contracted to perform work, and its subsequent cancellation of the agreement on the basis of force majeure had no legal basis. It appears that it is not sufficient for the party alleging that a force majeure event or circumstance has occurred, to reserve its rights and take no measures to mitigate the force majeure event or circumstance. 

As the number of reported infections and deaths increases, the global community led by WHO remain on tenterhooks as a result of the COVID-19 outbreak. Parties to commercial agreements need to carefully consider what constitutes “force majeure” in order to determine if COVID-19 outbreak could be interpreted as a force majeure event or circumstance in those commercial agreements.

Furthermore, the procedures which may be provided in commercial agreements in respect of the notification to the other party would need to be adhered to fully. Parties are further encouraged to take reasonable steps to mitigate force majeure events and circumstances, where permissible, failing which, parties may not be successful in relying on force majeure as a mechanism to be excused from specific performance. 

Last modified on Wednesday, 01 April 2020 11:10

Most Popular

Sectional Title Trustees and Homeowners Association directors face COVID-19 liability

May 22, 2020
Marina_Constas_BM_Law
The Covid-19 pandemic and South Africa’s lockdown regulations are impacting all aspects…

Deeds office reopen their doors to the public

May 09, 2020
Carlize Knoesen
The Department Agriculture, Land Reform and Rural Development has announced the reopening…

Dipula drops vacancies by almost 30% and concludes R370m new leases for 29 Feb 2020 interim results

May 18, 2020
Izak_Petersen_mdos3o
South-African focused JSE-listed diversified REIT, Dipula Income Fund, today announced…

2020 Commercial Property Outlook –Why Property Price/Valuations Indices don’t tell the full story of market weakness during a deep recession

May 09, 2020
John LoosFNB
In a downturn, Property Market Values can deviate dramatically from the market…

Development to bring residents closer to economic activities

May 19, 2020
Lindiwe Sisulu
Human Settlements, Water and Sanitation Minister, Lindiwe Sisulu, has declared 136…

Please publish modules in offcanvas position.