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Contractual Rights And Obligations

Fasken
Reading Time 4 minute read
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The terms ‘force majeure’ and ‘supervening impossibility’ have once again come to the fore. The topic of conversation this time is whether parties affected by civil disturbance in South Africa are able to be relieved of their contractual obligations.

Force majeure, directly translated from French to mean ‘greater force’, is a legal concept which refers to unforeseeable circumstances that prevent someone from fulfilling their obligations in terms of a contract. Contracts will often include a clause which outlines the requirements for a party to invoke this concept. A party who is able to successfully invoke force majeure is able to escape any liability it may have in respect of its inability to perform contractual obligations, through no fault of its own.

Parties must be mindful of what their contracts state with regard to what constitutes a force majeure event. The majority of contracts do provide for riots, strikes and states of emergency as qualifying events. In addition, a force majeure clause may either provide for a suspension of performance or a full extinction of obligations under the contract.

But there are two red herrings which parties should look out for in force majeure clauses. The first being whether or not timeous notice must be given to the other party of an invocation of the clause. The second is whether or not there are any events specifically excluded by the clause. These two factors may prove to be fundamental when trying to invoke a force majeure provision.

Where a force majeure clause does not exist in the contract, the common law doctrine of supervening impossibility could apply. Supervening impossibility occurs when performance of contractual obligations become objectively impossible as a result of unforeseeable and unavoidable events, which are not the fault of any party to the contract.

In determining the existence of supervening impossibility, the SCA in Transnet Ltd t/a National Ports Authority v The Owner of mv Snow Crystal said that it is necessary to take into account the surrounding circumstances of the case, including factors such as:

  • the nature of the contract;
  • the relationship of the parties;
  • the circumstances of the case; and
  • the nature of the impossibility.

Businesses need to be very careful when relying on a force majeure clause or the doctrine of supervening impossibility as a route to escape their contractual obligations. These legal principles do not provide a simple exit from a contract – and should a court find that a party was not justified in exiting a contract prematurely, the other contracting party could be entitled to an award of specific performance or damages. 

Generally speaking riots, looting and violence may constitute a force majeure event or supervening impossibility. Parties are however advised to take heed of specific contractual provisions, surrounding circumstances and to take legal advice where unsure.

The recent events in South Africa make it very difficult for affected parties to meet their obligations under various types of contracts: take for instance, a tenant in a mall that has been looted and destroyed; a manufacturer of goods fulfilling orders that have been partially paid for. There is no easy one-size-fits-all solution. Each case must be considered on its own facts before any decision is made.

For example, most leases provide for protection to both the landlord and tenant in the case of a destruction of the leased premises or the building (like a shopping mall) in which the leased premises is located. It is common cause that the vast majority of the vandalized businesses have rendered the leased premises, and in many instances, the entire building, incapable of being occupied. These clauses provide a type of moratorium or suspension of contractual obligations on the part of both the landlord and tenant, and the exercise of any rights as a result thereof, for a limited period of time. That moratorium should also apply in the case of the doctrine of supervening impossibility. In some leases the landlord is given a right to unilaterally terminate the lease if a force majeure event is likely to endure for longer than a specified period of time.  The other question that arises is whether a tenant, for instance, based in a popular mall with a wide-range of tenants, will have the right, now and in the future, to terminate a lease because it is uneconomical for the tenant to carry on business in those premises? Furthermore, will a delay or refusal by anchor tenants to resume operations within a particular mall affect the viability of that mall and render it uneconomical for smaller businesses to resume operations in that mall? These, and many other questions, require proper consideration and advice by taking into account the factual context, now and into the future, in which that advice is provided. 

Any declaration of force majeure or reliance on the doctrine of supervening impossibility must be exercised very carefully – the consequences of an ill-advised or improper reliance can be disastrous, costly and lead to undesirable consequences on the part of a party doing so.

 

This article was prepared by partner Haroon Laher, partner Jesicca Rajpal, and candidate attorney Wesley Fletcher.

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