Force Majeure is defined generally as any event or condition, not existing at the date of signature of a contract, not reasonably foreseeable as of such date and not reasonably within the control of either party, which prevents, in whole or in significant part, the performance by one of the parties of its contractual obligations, or which renders the performance of such obligations so difficult or costly as to make such performance commercially not viable.
In terms of South African Common Law, any such occurrence beyond the control of parties, which renders the performance of their contractual obligations impossible, which occurrence came about only after the conclusion of the contract, triggers the principle of supervening impossibility. Usually, if such an occurrence arises, without any act, omission or fault of either of the parties to the contract, and such occurrence renders the performance of any contractual obligation impossible, a party to the contract is excused from his duty to perform. Should a party wish to rely on the principle of supervening impossibility, such party bears the onus to show that the performance is objectively impossible and not just economically difficult or burdensome. In most jurisdictions, Force Majeure events must present the following criteria:
- The event must arise without any act, omission or fault of any party, thus external to the contract and the parties thereto;
- The event must render the parties’ performance radically different from what the parties originally contemplated;
- The event must have been unforeseeable at the time of conclusion of the agreement; and
- The event must be beyond the control of the party seeking to invoke the Force Majeure as a defence for its non-performance.
Some agreements contain a Force Majeure clause, which clause usually sets out the following principles:
- What would constitute a Force Majeure and providing a list of such events;
- A catch-all phrase on what may constitute a Force Majeure event;
- Providing both parties an opportunity to terminate the agreement upon a specific time and/or occurrence of event.
If an agreement indeed contains such a Force Majeure clause, the parties to the agreement are bound to the specific provisions of the contract. If the agreement does not contain a Force Majeure clause, the parties should resolve to the Common Law principle of supervening impossibility as referred to above.
In an English Judgment of Hackney Borough Council v Dore, the Judge held that:
“The expression means some physical or material restraint and does not include a reasonable fear or apprehension of such a restraint”.
This implies that a party who was committed to pay for a venue or entered into a Rental Agreement may still be liable for the rental and/or venue hire fees in circumstances where the occurrence only creates a reasonable fear or apprehension of a restraint.
In the case of the Covid-19 occurrence, the Tenant will still bear the onus of demonstrating that the risk of the impossibility to perform was not foreseeable and that the Tenant could not have taken any steps and/or implement any action to mitigate its circumstances which rendered the Tenant’s performance impossible. It is, therefore, not sufficient to indicate that the Covid-19 has merely rendered it financially difficult to perform, i.e. to pay its rental.
We foresee that the Covid-19 event could shape the law in ways which we currently cannot clearly predict. We, therefore, advise that reasonableness and due care should rather be the driving forces to navigate contractual parties through these uncertain times. Although President Cyril Ramaphosa declared a National State of Disaster on 26 March 2020, which has imposed various restrictions on businesses, a complete lock-down in South Africa has not been imposed to date hereof. The question, therefore, is not whether a tenant has undisturbed and full enjoyment of the leased premises during the lock-down period, but rather whether its performance has become impossible under the circumstances. For as long as alternatives exists, for instance alternative finance, reserve funds and/or other arrangements, it is our submission that the Force Majeure principle cannot be relied upon by a tenant to abate liability towards rental payable.
It is however worth noting that the Corona virus itself does not have to be the Force Majeure event. The Corona virus can cause, for example harbour shutdowns, delays in delivery of goods and/or services or any other event. These shutdowns, delays or lock-downs may effect a party’s ability to perform its contractual obligations and each case will have to be dealt with on its own merits.
In conclusion we therefore note that tenants who seeks rent deferral or reduction should not accept that Landlords are compelled to accommodate their requests. Tenants, should therefore, rather explain to their Landlords what measure they have taken to address their difficulties and obstructions before they entitle themselves to such deferral or reduction. Good legal advice can assist the parties by helping them individually to understand the contract and the legal interpretation of such contract, alternatively the application of the Common Law principles referred to above.
Article by Willem Van Heerden
Director – Dispute Resolution
Business Rescue Practitioner
Van Wyk Van Heerden Attorneys Inc
1 April 2020
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)